How To Get Our Money Back

2017-03-14 15:30

Financial Services Transformation

Parliament is holding the Financial Services Sector Transformation Hearings, there is little media buzz over these unlike the soapie of the SABC – however this sector decides whether we eat or we don’t. At the centre of the financial services sector are banks, in particular commercial banks licensed via the legislature to be the retail and business face of managing money circulation, creation and investment thereof.

The Key Issue:

The key issue for the ANC members currently focused on policy review mindset is why is it that money in South Africa seem to be stubbornly concentrated in the minority class, that is 15% of the population cutting out 85% of the population to negligible participation.

The Banks and Us:

Banks cannot argue or demand independence from regulation. It is not their money they manage nor is it their shareholders money. They, like a mining company which gets a license to mine resources, they get a license to “print” money. It is a privilege not a right. It is a privilege that must come with rules and pay back to the public not just bank executives and shareholders. Banks do not so us a favour, we do a favour to banks by issuing them with the right to control our lives in the most essential ways.

The Key Question:

The immediate and obvious question is – In a country with racial and class segregation - assume that there is no longer this race and class segregation or exclusion, what is it that must be done by all to make money that circulates in the country be equitable, growth oriented and race or class less.

Black People and Economy:

At this point, money circulates towards whites advantage with a small black upper middle class together making some 15% of the population tops. Blacks work for white owned businesses (except 900 000 civil servants), blacks shop and spend in white owned businesses, they use over 95% of all they earn in their lives towards white owned economy structurally. Banks provide money to whites to maintain their businesses and keep the hegemony of being products supplier to blacks whilst blacks supply their labor at 65% less what a white person in their position earns although black subsistence is more costly then white’s.

Though government can redistribute money to particular areas via its budget allocation, social wages and taxes, only banks and licensed lenders have the ability to supply money directly to users, the public and commercial sectors. Banks are the official intermediary for the South African Reserve Bank (SARB). The SARB itself is an intermediary for the government and or state.

What Is Money?

Our commercial banks create money via license in the form of bank deposits (real cash or a loan contract as deposit), when they make loans these loans are generated via contracts (just an I Owe You piece of paper) – of out “thin air money”, added to this is interest which is the real money part. The “out of thin air” part of the money gets written off by banks at the end of the contract or gradually as the loan achieves capital stage. So, banks are legally authorised to create money when they loan out – this loaned money need not exist within the bank or in the market place but just 14% of it should be available at any given time. In South Africa this used to be as low as 3% of the real money should exist in banks.

So in essence the money banks end up loaning out and getting interest over is not real money to the tune of 86% at least – it does not exist. Banks then create more money via the interest they charge for “the out of thin air money” they would later delete off or right off their books (accounting) through the balancing of accounts. In simplest way, banks have the power to simply punch in digits into ones banks account and those digits become money to the user.

Who Is In Power?

This is where the banking sector power lays the most. They decide who to give money to, they can use race and class as a criteria. They can use gender or education, religion or geography. Banks choose whether to heat up the economy or slow it down. They choose whether to put more money in industry or in high end housing market. The ratios they apply in which area of the economy they support directly correlate with the success of such industries or country at large. If black business is deemed too risky and government policy is not making it attractive through affirmative action supply chain policies, banks would not put money in it. Banks are in charge of whether houses in a particular area cost more or less or whatever. All they do is to supply more money to say Sandton apartments loans, leads to less stock and prices go up and so it goes. They could also decide to give engineering firms more loans then they give for a new mall development.

Likewise, if the legislature mandates that banks must supply a particular amount of money (ratios) to black businesses, these businesses would be the in thing. Similar thing applies to education loans or housing or other. If a market allows banks to determine their own path, the risk is what we have in South Africa where the structure remains the same and stubborn with the façade looking pretty.

Who has the Cash?

The high inflationary environment keeps banks highly profitable. It is in their own interest to keep inflation high as they bump up cash deposits they use to speculate in other markets created by them for them. As is, inflation in South Africa has encouraged businesses to keep over R1 trillion in cash in the banks as interest is attractive than reinvesting the money in the real economy. This money is not circulating and is also causing low growth stagnation. There are also global effects on this. If corporates spent this money they are hoarding in banks, our economy could rise by a minimum of 3% above the current 1%.

Globalization and Us:

The National General Council should consider taxation on cash hoarding by corporates and as such course for SARB to put limits on interest earned by corporates on unproductive cash in banks. Many G20 countries have such tax laws to encourage corporates to spend cash on employees, shareholders and reinvestment. These could also be complimentary in that a corporate that hires more people gets certain tax rebates. The current wage subsidies are a fallacy of a government employing people to work in private sector. It's a social wage best issued directly to the youth in cash.

The country monetary policy is key to an inclusive country. This is where the left comes from when it demands state owned banks, but you can have hundreds of those, for as long as they operate in this environment in means nothing. We must reimagine, understand and restructure our banking sector and monetary system and policies. This cannot be achieved without legislation and an activist parliament. The first door is SARB. The next door is G20 which then leads to International Monetary Fund (IMF) and World Bank. Changing ones monetary policy alone in the global sea is not enough.

We must decide whether economic participation remains less important than price fluctuations.

But We Have China?

The issue of the United States Dollar (USD) hegemony in international monetary policy is not sustainable. The introduction of the Chinese Yuan into reserve currency status is also not a panacea for middle income nations like South Africa. Because the Chinese have invested so much in the USD and they hold so much of its debt, the two currencies are now intertwined and BRICS or no BRICS we cannot beholden or blindly trusting of China due to this and their own trade balance to the US. BRICS is strategic but not permanent and can simply move with the winds at anytime.

At the policy area, the ANC branches must start to interrogate the meaning of the unipolar hegemony of the USD and what it means in terms of global politics going forward. South Africa must be in the forefront of demanding a creation of an international currency managed by IMF as an instrument of trade and reserve along the lines of the existing IMF Special Drawing Rights SDR. The Japanese Yen, The British Sterling, the Euro and Yuan are all interlinked to the USD and must be seen as interdependent against the rest of the world.

Money and Africa:

South Africa's agenda is wider and getting more complex. Its complexities is located on how we see the African continent. An ANC without top African politics expertise is not ready to govern. ANC cadres must know more about Senegal than they know about Hilary Clinton.

Adding to Africa’s woes is that although the French Franc is officially non operating as a currency or reserve, at least 15 countries, 14 of which are still using the Franc with all its monetary connectivity based upon domestic French economic whims. This directly impacts on South Africa’s growth and African Renaissance is immeasurable ways – an issue South Africa cannot let sleep any long.

We need a stronger more financially/banking independent Africa for South Africa to truly prosper. We must imagine a world without the global south or west but just the continent. It is not just Western Sahara that needs its freedom but the Francophone Africa too. This is a more urgent and pressing progressive agenda.

Domestic and Global Transformation?

As the International Relations Commission seats during the June National General Council of the ANC, so would at the separate meeting room be the Economic Transformation Commission and both would deal with similarly issues without coordination. You can not discuss the meaning of the G20, the United Nations Security Council transformation or International Criminal Court and ignore the International Monetary Policy which directly informs your own nations domestic economic policy or whether ABSA and other would manipulate the rand or not or whether prices will suddenly go up as and when Americans think their own economy needs such.

Trump and Us:

ANC branches should understand that what Mrs Janet Yellen does with the US economy directly affects whether South Africa is stable or not. The complexities of these matters are known and what is now required is different boldness in dealing with all these in a comprehensive connected policy orientation that could even look at other forms of managing SADC or AU policy architecture.

Our Politics:

For the sake of both blacks and whites in South Africa, enough is enough with the squabbling. The economy is stagnant not because of Jacob Zuma but the nature and character built by society and resisted by it too. If we do not share the economy and persist on petty fights, SASSA will have to grow and introduce a grant for university graduates. A sophisticated economy that has 85% of its population outside of it is not healthy. The cake can be made big by confronting and changing the banking system and its related distributive policies.

Land and Banking:

ANC members must also learn that when the ANC talks about land the first thing that comes to mind should not be a farming business or just a subsistence farming plot. Yes those are critical to new economy and we must grow our agricultural businesses from land produce to warehousing, packaging and processing of foods but when we talk about land the first thing that must come to mind is a personal home, a decent home with a yard big enough to build yourself another home on it. That is what is essential in the new economy. It is the ability to have a home that has value and that enables you to reach work within 30 minutes tops. This means good land near environmentally friendly economic hubs.

The current subsidised housing policy is counter land reform as these homes are packed on top of each other in designs that do not enable extensions and are all very far from economic zones causing the subsidised persons to opt to erect shacks near cities so they can afford to work. These homes places communities in areas where transportation costs to work is up to 70% of the wages and the home itself has no value appreciation.

Compounding the countering of land reform is the fashion to issue title to these homes as a form of empowering the owners to get loans and use the homes as collateral. At the end, loan companies will hold large stock of repossessed homes and dump these back in the market distorting it further and reversing the very issue of giving land to each South African. As is the ANC National General Council will have to figure out how these matters can live together in harmonious policy. Housing repossessions by banks need to be made a little harder for mortgage bonds that have repaid all interest amount because that is the real money and the balance is in any event deleted by banks after the loan is serviced. This would also contribute positively to the economy and extend participation whilst enhancing other areas.

Blacks are Owed Apartheid Reparations:

If city councils like Cape Town or Nelson Mandela Bay and eThekwini continue to sell prime land to the highest bidder due to whatever considerations, they are countering land transformation. These cities are perpetuating racial segregation planning and cutting off South African land along class and race again.

If large land owners like Transnet, Eskom and others are allowed to sell chunks of lands to highest bidders who offer either higher middle class developments or simple gentrification, the state itself is counter-revolutionary in this regard and it could be that ANC members consider a moratorium over SOEs and city councils disposal of land be it in Camps Bay or uMhlanga or BoKaap and Sandton.

There must be a deliberate land transfer to blacks with clear rules and fairness. The ANC must commit itself to the principle that blacks are owed apartheid restitution in all forms including land as a priority and this restitution is due and payable now.

Emphasis Of The Matter:

Key two top GDP contributors are financial services sector and the connected real estate (land trades).

The financial services is a key driver of inflation or management thereof and have shown incapacity or reluctance to manage inflation. In late 1980’s, inflation hit 20% and has averaged at 9% between 1968 and 2015. The financial services sector influence inflation via many products including mortgage bonds and others.

The financial services sector, contributed 1% to the 3.3% average annual growth in GDP (2008-2012).

This sector is getting more powerful, it has shown capacity to control a presidential power in terms of cabinet appointments, has the reluctance to embrace the new South Africa and time and again has proven to be unpatriotic through direct currency corruption since 1996 as investigated by former president Thabo Mbeki in his first term and now recently by the Competition Commission under president Zuma.

The compounding factors include having key ANC leaders as bankers which is unsustainable on its own ethics and conflict.

@mbindwane writes in personal capacity in contribution of the opened policy debates

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