”There can be nothing further away from the truth than the claims of the Reserve Bank and it seems all the professors in economics and economists in the country and even in the world, according to Fanie Brink, an independent agricultural economist.
He referred to the article published in The Conversation “Explainer: South Africa’s central bank – ownership, mandate and independence” by professor Jannie Rossouw, Head of the School of Economic & Business Sciences, University of the Witwatersrand.
Brink says all the claims that monetary policy can contain the inflation rate, protect the value of the currency and stimulate economic growth is the single biggest delusion in economic science. There is absolutely no evidence that can prove these claims because it is just not that simple and interest rates do not nearly play such an important role in the economy.
Why would the price (interest rate) of money and capital play such a much more important role in the economic performance of any business and industry than the rewards for the other three basic production factors namely, land and raw materials, labour and management? There is just no reason at all!
The inflation rate is determined by all the local and international political and economic factors that have an influence on the supply and demand for goods and services.
The value of the currency is determined by all the local and international political and economic factors that have an influence on the supply and demand for the Rand in comparison to all the other currencies of other countries.
Economic growth is driven and created by the profit margin today all over the world even in Russia and China! Both countries have accepted capitalism as the best economic system to create and that is also why it is generally accepted that China will become the major economic power in die world before 2030.
Profits are created by two drivers, firstly, by the changes in the prices of all the inputs (for example, gold ore) that are used in the economy against the changes in the prices of all the outputs (for example, gold) that are delivered. Secondly, by the efficiency of the process to convert the inputs into outputs, which must be improved by the application of the best and new technology developments to support the producers, manufacturers and other to deliver more outputs with the same quantity of inputs or to deliver the same quantity of outputs with fewer inputs. (for example, how many tons of gold ore is needed to produce one kilogram of gold).
Economic growth is, therefore, totally dependent on the profitability of the economy and the government should create an environment that will be conducive the increase of the profitability and sustainability of each industry in the economy to improve economic growth.
The most ridiculous part of monetary policy is that it punishes the consumers for price increases that they are not responsible for, for instance, when the oil-producing countries cut their production or when the country experiences a serious drought, and then they believe that higher interest rates can solve these problems. The central banks clearly don’t understand that the supply in the economy also has a huge effect on prices, while the increase of the profitability of the economy that can increase the supply is still by far the best way to curb inflation.
Growth can after all only be created in a capitalistic economic system, while socialism and communism can only destroy it as proven and rejected by almost all the countries in the world years ago.
The biggest economic problem in the world happened because everything in the economy became more important than the market forces of supply and demand which in effect is the total existence of the economy and everything else is somehow only related to this very truth!
It is laughable that the mandate according to the Constitution ("to protect the value of the currency") is these days that must more important than the mandate according to the Reserve Bank Act ("to stabilise prices") just because it is written in the Constitution. It also makes the Bank dependable on the decisions of politicians to the extent that the Bank can only exercise its mandate independently!
The mandate of the Reserve Bank according to the Constitution and the Banks’ Act, as well as the ridiculous inflation targets, should be scrapped and interest rates should be determined in a money and capital future market, based on the supply and demand in the market, which will be the most accurate and equitable way to determine (discover) interest rate levels!
"The Constitution of the country cannot be that prescriptive about economic policy because the government has already gone too far to interfere in a market-oriented economy with various laws and regulations that disturb the free operation of market forces and price formation."
“The economist from the Harvard University in the USA, professor Ricardo Hausmann, who attended the colloquium on economic growth that was organised by the Minister of Finance, Tito Mboweni, who said that there is no “miracle cure," to achieve economic growth is simply wrong because “profits” is the “miracle cure," "formula" and "best practice" in terms of economic policy that can create economic growth,” says Brink.
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Bothaville
25 January 2019
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