South Africa Meeting Many Of The Conditions For Hyperinflation

in #economics2 months ago

Hey JesSouth Africans

I've been a keen follower of both my local economy and international economies simply because what they do affects my standard of living. As I dived deeper down the rabbit hole that is Bitcoin and cryptocurrency, I began to learn about the economy as a whole. I've read about Keynesian economics, Austrian economics, free markets, MMT, communism/marxism/socialism and all of them have their pros and cons' some have more than others.

What I've noticed is that all these economic systems are by label only and while they have sound principles on each side. Theoretically could work and provide an excellent qualify of life, what they all fall flat on is the ability to eradicate nepotism and cronyism.

Good ideas, shoddy implementation

Fundamentally power will be centralised in any economic framework that has a single point of failure and a single point of distribution. Arguing the merits of capitalism vs socialism in a top-down, centralised fiat system economy is like arguing which shoes are better for you, but you have no legs.

We cannot begin to enjoy what capitalism or socialism can bring unless it is done so in a way where the money has competition.

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A local economy like many others

Like many emerging economies, we've been sold the lie that all we need to do is spend our way to economic prosperity. The Americans have set the tone, but since their currency is tied to all international trade, they have a Trump card (pun intended) that other's do not have.

South Africa has plenty of labour, right demographics, fantastic natural resources. Still, we are grossly mismanaged like any African country corruption has kneecapped us along with big government and socialist policies we cannot afford, and we've limp on ever since.

Having such a fragile economy to being with was never going to be easy to handle a lockdown and all that we've seen this year. While many will blame the disease, the economy was sick, to begin with, and this only brings forward what would have happened eventually.

Debt

According to commodity.com, South Africa is sitting on around USD 227 Billion in debt, or which in our local currency is around ZAR 4 Trillion. While this looks like chump change compared to more developed nations debt and BTC, and even companies have a bigger market cap than South Africa's debt, what we need to account for is relativity.

This leaves South Africa with a debt to GDP ratio of 60.48%, which means we have less than half the way to go to complete Japanification in a sense.

Public Debt (% of GDP)

As you can see from the data below, our debt to GDP has continued to rise even before all the lockdowns and drama. In addition, the theory of diminishing returns comes into play.

Year201320142015201620172020
Debt pecentage44.147.049.351.65360.48

Governments think they still have plenty of room to deficit spend, and because they've done it in the past, it will continue to work.

Unfortunately, fiat cannot create production, esepcaully in a lockdown economy, so it's not that we're only spending but that our GDP is shrinking, putting pressure on both sides.

The South African government has already spent ZAR 500 billion with another ZAR 78 Billion on the way in IMF loans, around USD 34 Billion.

Repaying the debt

South Africa has $11,930,100,000 in interest on the debt alone, and since the majority of it is dollar-denominated, it makes it harder to pay back. At the moment for us to meet our debt requirements, each citizen should be producing $4 161 (ZAR 70 000) of taxable income per year just to service it.

I can tell you now from looking at South Africa's tax receipts that is simply not going to happen. It's near impossible; we're basically a zombie country at this point since we cannot afford to service the interest on our debt, never mind the eat away at the principle.

High unemployment

South Africa has always had high unemployment in general, hovering around the 27% range for years, as of this year it's begun to skyrocket, and is way above 30% and getting worse each month, I won't be surprised if we're in the high 30s low 40% rage with over 10 million jobs last this year already.

Creating employment will be far more expensive than we think and getting people back to work to improve the velocity of money and a rate of production to cover our deficit, I see mathematically as an impossibility.

Velocity of money

As jobs are lost, as people save, as banks foreclose, as lenders tighten up, we will see people save, regardless of the low-interest rates we are given. The velocity of money is at an all-time low, yet we don't feel it yet. Normally CPI (Consumer price inflation) tracks at around 18 months behind the velocity drop, so even if we do see a recovery the inflation tracking with money velocity is going to hit us like a tonne of bricks next year or early 2022.

Consumer inflation

Having so many poor people, so many on the fringes, so many middle class levered up, so few having savings, so many on government assistance means that there is a large population who all can and will have similar spending habits. When we see so many people chasing a specific set of goods and with a limited production, we will see significant price inflation in the areas of the economy that count the most, and that's food.

This one is a double-edged sword, if we cannot feed our people we either have to continue to deficit spend to try and secure product from overseas or fund to get production up and running to meet the demand and stabilise prices.

As the price of food goes up, so does the cost of living and labour and so it puts pressure on every transaction to provide more margin and more profit to try and absorb the shock.

Devaluing of the currency

To repay the debt, to stimulate the economy and to get any sort of recovery going, the government will have to borrow and spend. They talk about a debt ceiling, but I see no way they'll let them stop it, 100%, 120%, 150% of GDP, anything to try and spend their way out of this mess.

Paying back the debt with the dollar increasing, paying for growing social programs, paying for economic stimulus, paying for payroll protection and all this, may seem like a good idea to some, but it costs us all.

Anyone who holds a Rand in their bank account is effectively picking up the bill for these destructive policies.

I have no hope in the South African government and banking system to pivot to any other strategy but inflate the debt away through hyperinflation.

Early, but not wrong

Perhaps I am a little early, but I'd instead make the right call early on and lose in the short term to win in the long term. I'm still young enough to be able to recoup anything I lose in these trades and have marketable skills to generate cash flow, so I'm not too worried going forward.

I am very concerned by these numbers and have slowly started to get out of the Rand, moving either to USD or to Satoshis instead. I don't mean to be a doomsayer. Hopefully, South African's will be able to rally during these times, and as always we will adjust to new pricing ranges in nominal terms.

The ones who need to worry are those who have saved cash, it's leaking its purchasing power at an insane rate, and if you do not move it into inflation-proof asset classes, you're going to lose out.

Protecting against my downside

At this point, I'm trying to protect what I've saved more than trying to make money and if I do make a few pennies extra by betting on these asset classes, then all the more reason to take on this strategy.

Most of the country will see things as business as usual since they're kept ignorant by the state and clueless local economists who are not fit to give an opinion. All they are, are what we see in crypto, paid shills. Naturally, they dedicated their lives to studying flawed economics, and this has lead them not to have the ability to think outside the confines of the system.

They perpetuate myths of opportunity and salvaging something that is, by definition, systematically broken.

Have your say

What do you good people of HIVE think? Is the South African Rand circling the drain?

So have at it my Jessies! If you don't have something to comment, comment "I am a Jessie."

Let's connect

If you liked this post, sprinkle it with an upvote or esteem and if you don't already, consider following me @chekohler and subscribe to my fanbase

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Just a Jessy Today.

So my fellow SEO, have you checked out Google Web Stories?

No not at all.
I need to after vacation

Yep no good at all and we in Australia are going backwards fast I think we will catch up to the unemployment rate you have soon.

I see many aussies are trying to tap into early access to their supers, which is scary since most supers are actually locked into property investments so they're pretty illiquid. If people continue it could set off quite the collapse

Yep not looking good here mate😵

Good to see that you're still around @j85063 :)

Ahaha, you are right they learn us how to consume and spend all of our money we earn 😣

The debt is just another side for them to accurate more money and also let us still into slavery.

South Africa is a great land with lot of ressources, I really hope one day Africa will be shining and raising.

Big hugs

Ain’t that the truth and it’s tough to break out even I who can see it find myself struggling to find my way to secure my future! Africa indeed has potential but until they mismanaged stops there will never be a chance

I agree, you've said everything, my friend!

One more question @chekohler

I can tell you now from looking at South Africa's tax receipts that is simply not going to happen. It's near impossible; we're basically a zombie country at this point since we cannot afford to service the interest on our debt, never mind the eat away at the principle.

What would stop SA from following Lebanon recent steps and decide that they will stop paying those debts? What are consequences of country claiming bankrupcy?

Yours,
Piotr

If the country declares bankruptcy they will no longer have access to capital markets and then the currency collapses and they would have to rebuild without outside finance. While this isn't a death sentence, as you can see in Lebanon and Venezuela they will have to move in the shadows to build new ties with countries and find support as well as focusing inward and improve GDP.

The problem is if you're the only one living within your means and everyone isn't you all get left behind. Politicians cannot campaign without the promise of more spending so that leaves the government powerless and it will lead to all sorts of fractions and revolutions

As for South Africa culturally, if you think the Lebanese rioted, if that happened here it would be an all-out war, I have no doubt about that

Appreciate your reply @chekohler

I've heard that France declared bankruptcy several times in the past. And that is making me confused. After all - right now they are still one of major super powers out there.

So much to learn. Keep up with great content buddy,
Yours, Piotr

France is a major superpower and I think between them and Germany will be the best off in the new world because of their strong exports. The Eurozone also favours their debt over other countries so they can issue more bonds than the rest of European nations.

I'm not too sure what bankruptcies they've declared I'm not so schooled up on the French economy exactly

Dear @chekohler

Hopefully South Africa will not share history of Zimbabwe and Venezuela. It would be very tragic for so many people. Stay safe buddy.

I've read about Keynesian economics, Austrian economics, free markets, MMT, communism/marxism/socialism and all of them have their pros and cons' some have more than others.

I wonder - which one is the closest to your heart?

ps.
I've noticed that you've been downvoting our content lately and I was wondering if there is any reason for your actions?

Did I do anything to upset you? Just curious.

Yours, @crypto.piotr
@project.hope founder

I'd say the Austrian school I enjoy their theories the most,

As for downvoting, I don't actively downvote that much but I don't want my DV power to go to waste so I follow both curation and downvote trails. If the people downvoting your posts don't give you an answer you should speak to the steem flag rewards discord, I follow a few of them

Thanks for letting me know