SARB continues to barricade the free market

Why would anybody in their right mind want to save money when every time the economy enters a recession, interest rates are lowered in a bid to soften the blow to over-indebted consumers and businesses? The recession is the time that individuals, businesses and government should be putting money aside that, once the recession road’s clear, can be used for investment spending. But instead the SARB uses inflationary monetary policies which barricades the market from functioning, as their policies clearly favour indebted individuals and businesses over savers. Savers who’d prefer to put money away for rainy days are encouraged to consume and invest, which means they end up not saving. At the end of the day individuals and businesses tend toward debt-financed consumption. But savings are the lifeblood of investment, for without first saving money, there is no available capital for investment. The SARB’s creation of new Rand is NOT the same as real savings.

Repo rate: How low can SARB go?

Inflationary policies (SARB’s forceful lowering of interest rates & expansion of the broad money supply through the government’s increase in public debt) encourages consumption at the expense of savings, which leads to capital depletion – and a distortion of the economic structure (a disproportionate increase in the services sector – particularly finance, insurance & real estate – relative to the manufacturing base of the economy, see table below – from 2000 to 2005 there was a swing of 180 bps in the primary and secondary sectors to the tertiary sector in terms of gross value added to GDP).

Getting rid of SARB is the only way to re-industrialise SA economy

It should be clear why, despite popular opinion, the recession is in fact, a good thing: it is a period where the economy rids itself of the mal-investments that occurred during the period of the debt-financed consumption binge. In order to get the economy back onto a solid footing and pave the way for organic growth, the free market must be left unimpeded. All that can be achieved through the government’s inflation in the short-term is that unsound businesses and debt-ridden consumers are bailed out at the expense of savers. The government is praised for saving the economy, which is visible to all. What is not visible is that savers, the real creators of wealth and harbingers of organic economic growth, are severely punished and slowly but surely eliminated until there aren’t any left.