“Monetary policy is a total delusion because economic growth is created from both the supply and demand side of the economy and interest rates is, in fact, irrelevant,” says Fanie Brink, an independent agricultural economist.
He reacted to a paper titled, “Restrictive monetary policy — bereft of reason,” co-authored by dr Roelof Botha and Ilse Botha at the Gordon Institute of Business Science at the University of Johannesburg.
According to Brink, growth is driven and created by the profit motive which is the result of the operations of the market forces of supply and demand and nothing else. Interest rates are not nearly as important in the economy as most economists and central banks in the world want it to be.
The influence of interest rates on growth is never even mentioned as a factor that has an influence on the quarterly and annually economic growth figures of Statistics SA. Many economics, however, who are still supporting the delusion of monetary policy are also accepting the figures of Statistics SA which clearly show how growth is created from the supply and demand side of the economy!! Interest costs do not even appear on the list of all the household expenditure of consumers.
"Household consumption spending" only accounts for 78% of the total expenditure on the Gross Domestic Product from the demand side of the economy which means nothing if there is not a corresponding contribution from the supply side of the economy in terms of consumer goods and services, exports, as well as property and other investment opportunities which creates capital formation!!
Why do the Reserve Bank and most of the economists not give us any evidences or indication how much did interest rates, for example, contributed to the economic growth in 2019? Just because such information of something that does not happen, does not exists! And why do they not tell us how much interest costs consumers pay as a percentage of their total household expenditure? May be because they shy away and do not want to tell us that it is, in fact, far less than 1%, as they all speculate about the impact of interest rates on consumer expenditure and economic growth but no indication is ever given by them.
Monetary policy is the same fallacy when it comes to the influence of the changes in interests rates on the inflation and exchange rates which cannot statistically explain the changes in these rates. The inflation and exchange rates are, respectively, determined by the changes in the local and international economic and political factors that have and influence on the supply and demand of goods and services and the value of the currency, and not interest rates. The changes in the interest rate of the Reserve Bank is, in fact, only following these local and international changes, while it punishes the consumers for price increases that they are not responsible for.
“Lower interest rates can, therefore, not make any difference to the threat and negative impact of the coronavirus on economic growth," says Fanie Brink.
Why a deep cut in SA’s repo rate is required?
https://www.businesslive.co.za/bd/opinion/2020-03-17-why-a-deep-cut-in-sas-repo-rate-is-required/
