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I spoke to Bruce Whitfield about ETM Analytics’ household price index inflation that has climbed by 9.2% from March 2013 to November 2013, an annualised rate of increase of 12.4%. This compares with the ‘official’ inflation rate of 5.5% year-on-year in October 2013. (I come in at around the 27 minute mark).
I’ve written about the consumer and retail boom in South Africa many times in recent years – most recently in “SA Mining at ‘Breaking Point’”, “South Africa’s Regressing Economy”, and “Impact of Real Interest Rates on Retail and Manufacturing.”
Retail spending is being funded mostly by borrowing from foreigners and locals selling assets to foreigners. We’re selling our capital stock to foreigners and spending the proceeds, not reinvesting it in manufacturing and productive capacity. A low-real interest rate environment means SA is living beyond its means. It’s a highly bearish long-term development for the SA economy.
Bruce Whitfield had Evan Walker, an analyst from 36one investment management on his show this week to discuss the massive expansion of capital investment by retailers to serve this demand that’s being financed in an unsustainable manner (in a macro sense).
What I see developing down the road is not necessarily much higher consumer goods prices to pay back the capex (although I do think consumer prices are going to go up more), but the potential of a huge overinvestment in the retail space. Real retail rentals and space is going to collapse at some point and it will be much cheaper (maybe very cheap) for young new startups to get into the retail market, or to use the space for other purposes, where it’s extremely expensive and difficult to right now where mostly major retail corporates with access to cheap debt and equity financing flowing have the bidding power.
Interview below. Give it a listen.
I presented my and ETM’s macro view on the Africa consumer boom at the Thomson Reuters 3rd annual Trading Africa Summit held at the One & Only in Cape Town this week. You can download the PowerPoint presentation at the link below – Thomson Reuters will make a video of my talk available sometime next week that I’ll link to as well.
My Africa boom-bust article originally published at Mises.org has been translated into Afrikaans by AfriSake: “Afrika: Die volgende groot opbloei-afswaai-siklus?”
by Russell Lamberti
I posted an interview with Peter Klein on entrepreneurship at the Mises SA Blog.
The original interview is here.
Here’s a choice excerpt:
Niaz: Why do you think entrepreneurship is the fundamental stand of understanding economics? And how?
Peter: Unfortunately, most people see economics as a dry, technical subject that involves poring over charts and graphs and writing equations to describe the “equilibrium” behavior of hypothetical actors. But economics is a logical, deductive, human science about real people acting in the real world, with all the dynamism, unpredictability, and creativity that entails. Markets aren’t static, lifeless mathematical constructs but lively, vigorous spaces where people interact and coordinate. Firms, markets, and industries don’t just come into existence by themselves, they have to be created and operated by real people with real responsibility. These people are entrepreneurs, what Mises called the “driving force” of the market economy. That’s one reason I’m attracted to the “Austrian” approach to economics, which has always placed the entrepreneur at the front and center of production and exchange—not an incidental actor who steps in to introduce novelty then fades into the background as the “normal” market process resumes. Entrepreneurship, as decisive action under uncertain conditions, is at the very heart of a market economy.
Niaz: At eTalks, we believe entrepreneurship is a great tool that helps building sustainable economy. We also believe entrepreneurs are the rock starts those who work to keep economy growing. Both entrepreneurship and entrepreneurs are the driving forces and instrumentals to build strong economy. Now, how do you connect these three dots: entrepreneurship, economic growth, and development of a country?
Peter: If we think of entrepreneurship is the broad sense of judgment under uncertainty, then economic development and growth can not exist without entrepreneurship! It is the entrepreneurs who invest the capital necessary for productivity growth, who organize production into firms and industries, who compete and cooperate to create and distribute goods and services to consumers in the most efficient and profitable manner. If we think of entrepreneurship more narrowly, as small business or startups or venture funding, then the story is more complex. To be sure, smaller and newer firms are often disproportionately responsible for employment growth and, in some contexts, the introduction of new products and new technologies. At the same time, large enterprises can also be innovative, and capital accumulation is often critical to achieving economies of scale and scope, even in today’s “knowledge economy.” And not every individual wants to be responsible for owning and operating a small business. Unfortunately, large firms are typically more adept at securing for themselves special political privileges and protection against competitors, though small firms play this game as well. Ultimately, I am agnostic about what mix of small and large, new and mature, and high-tech and low-tech firms is best for economic growth; I prefer to let competition in free markets sort it out.
The US Fed, Bank of Japan and ECB have all in the past 12 hours announced an extension of QE policies.
The US Fed said it will prolong its $85 billion per month printing spree.
The Bank of Japan this morning “maintained its commitment to unprecedented monetary easing.”
While news is just breaking that the ECB announced its temporary currency swap lines with other central banks will become permanent.
Coincidence that this all happened in the past 12 hours? It’s a way of debasing currencies at the same time, so the market doesn’t single out either of these currencies in a speculative attack. It would seem that these money printing announcements are being carefully coordinated and timed so these currencies weaken together.
I’m very pleased to announce that South Africans with an interest in free-markets, liberty, and in particular, Austrian economics, are in for a treat in November.
Peter G. Klein, Executive director and Carl Menger Research Fellow of the Mises Institute, and Associate Professor in the Division of Applied Social Sciences at the University of Missouri, will be visiting South Africa for a week in mid-November.
Professor Klein has speaking engagements at AfriSake, Solidarity, and Wits. The business dinner hosted by AfriSake on Thursday 14 November at Centurion Lake Hotel is open to the public and one can book seats for the event here. Prof Klein will be speaking about the free-market economy and property rights as a solution to SA’s economic challenges. Tickets cost R250 each or R2000 for a table of eight. There is a maximum of 100 seats available for the event.
Still more about Prof Klein: “At Missouri he also directs the McQuinn Center for Entrepreneurial Leadership, and he holds adjunct faculty positions with the Truman School of Public Affairs and the Norwegian School of Economics. His research focuses on the economics of organization, entrepreneurship, and corporate strategy, with applications to diversification, innovation, food and agriculture, economic growth, and vertical coordination. Klein has authored or edited five books and has published over 70 academic articles, chapters, and reviews. See here for his complete vita and here for his website at the University of Missouri.”
Here is Peter discussing what Ben Bernanke did by not tapering QE in September.
I cannot recommend this video highly enough. It is extremely powerful as it explains step-by-step the machinations of the modern monetary system. Mike Maloney is absolutely spot on about this: the system impoverishes the working class every single day. This is why the majority of the working class in South Africa will become poorer and poorer with time, and their anger and resentment toward the ‘wealthy’ and ‘capitalists’ and ‘whites’ will grow as well. In a day, the video has already received nearly 400,000 views (and counting).
I really can’t stress enough how important an issue this is. Well done and thanks Mike Maloney for producing such a brilliant video.
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