Tuesday, 27 January 2009

Saving the South African Economy

Letter written to the Cape Town newspapers: ...

David is a scientist and Reiki Master with a Masters in Business Administration who helps people and organisations to heal. For more information please contact David at david@ceo-reiki.com.

Dear Editor

The Cape Times' "Rate Cuts Could Lift Rand" on 14th January 2009 and the South African Reserve Bank's (SARB's) recent statement that they are bringing the interest rate announcement forward a week refers.

As a healer working with companies and individuals, I am finding more and more distressed organisations and families in South Africa. The common perception is that the worldwide slowdown is not effecting South Africa. However I believe that this is a myth and that in the next few months 1000's of businesses will close and tens of 1000's of jobs will be lost.

There is a lot of goodwill in South Africa with business owners investing in their own businesses, but at some point this will stop and South Africa will be in trouble. I have asked everyone I know who is bailing out their own organisation to fax Mr Tito Mboweni at the SARB on 012 313-3197 or 012 313-3929 stating the total amount of money they have invested into keeping their companies going over the past three years, what their budgeted and actual turnover and net profit figures have been for the past 3 years (ending December), what their employee numbers were on the 31st December of each of these years was, and what their budgeted turnover for the year ending December 2009 is, and what their projected staff complement will be on 31st December 2009.

I believe that these "suddenly visible figures" will shock the reserve bank into doing something bold and aggressive that will stem the tide and show that the SARB is interested in supporting its primary goal of "the achievement and maintenance of price stability." The SARB can do two things that will: dramatically reduce interest payments, whilst removing liquidity from the market, increase net profit, strengthen balance sheets, and at the same time dramatically strengthen the Rand and dramatically bring down inflation AND maintain price stability.

Before I state what they are, I want to refer to the Cape Times' article on 14th January where Professor Brian Kantor of Investec and other economists state that "rate cuts could lift the Rand." A graph was shown on that day that shows that since 2002 rate increases have weakened the Rand and rate decreases have strengthened the Rand, exactly the opposite of what happened in South Africa before 2002.

The two bold initiatives are: 1) dramatically cut prime interest rates by a 1/3rd from 15% to 10% as has been done recently in the USA, Europe, UK and Australia; but 2) increase the banks "cash" reserve ratios held with the SARB from 2.5% of total liabilities to 7.5% of total liabilities and tell the banks that they must hold half of this reserve margin in physical gold at the SARB. Cutting interest rates by such a large amount will give business owners the courage they need to "stick in there", even potentially to invest in new capital or ideas, and potentially to grow or maintain their businesses. It will give credit card holders, car owners and bond holders a breathing space at a time when salary increases and bonuses are on hold. Importantly the ability for someone to go on a spending spree will be curtailed as the banks won't be able to lend because their reserve ratios will just have been tripled and they will be given 18 months to ensure that they meet these reserve requirements.

Bank's ability to give 100% bonds will be eliminated and may be reduced to 80% where it should be. Names such as United Building Society and NBS might reappear as people use their sudden availability of excess funds to start saving or repaying their debts incredibly quickly. The private person's ratio of debt to household disposable income will dramatically decrease thus fundamentally improving his balance sheet and giving him a firm foundation on which to grow his micro-economy into the future.

David Lipschitz
14 Mimosa Street


Evil flourishes when good men do nothing (Edmund Burke)

No comments: