I have a poor view of the economic system that bucks and throws with more planned insanity than fairness. In South Africa, we have more potential volatility as workers are continually dissatisfied, demanding more through strikes and bribed government which makes the poor poorer and the middle class unstable. Our economic disparity is the highest amongst similar countries, a price that will have to be paid for eventually.
There was definitely financial rape of our country by mostly white owned big business but the new abuse is by our mostly black government which steals from the poor through BEE and then uses racism to distract from their crimes. Using hate as a tool for selfish enrichment can only lead us all, eventually, to bad places. There can be no stable market if citizens are unstable.
Nevertheless, i put aside my belief in conspiracies to look with fresh eyes for my father. All i gained were new fears.
I threw facts at the investment broker who was honest enough to admit that our economic destination is uncertain. He said that market volatility had begun in September of this year.
The pin around which finance seems set to fly is the US dollar, not as the inappropriate world currency but rather the efforts to displace it with a world currency. A possibility for this is the SDR (Special Drawing Right), sometimes referred to as the XDR. It is not a currency but rather a reserve asset held by the International Monetary Fund (IMF) that can be exchanged for U.S. dollar, the euro, the British pound, and the Japanese yen.
The IMF defines the currency value of the SDR “by summing the values in U.S. dollars, based on market exchange rates, of a basket of major currencies (the U.S. dollar, Euro, Japanese yen, and pound sterling). The SDR currency value is calculated daily (except on IMF holidays or whenever the IMF is closed for business) and the valuation basket is reviewed and adjusted every five years.” You can read more about it here.
As a concept expanded to all currencies and reserves held by IMF members, it offers a realistic economic basket for the world that includes tangible assets (e.g. gold reserves) and lessens exchange rate volatility. The next review of the SDR, and the consideration for its expansion, will happen in 2015.
The fantastic Philosophy of Metrics website points us to the “blueprint and engineering surrounding the SDR based multilateral financial system” with a link to a “document titled Enhancing International Monetary Stability, published by the IMF in January, 2011.
The IMF, along with the World Bank, has long been seen by me as a world manipulator for the USA and big business. Their policies seem to help poorer countries in the short term in return for more control over them in the long term. An overview of Africa would suggest that the disparity between it and the main IMF countries remains entrenched. So how can it be trusted?
It can’t be…
…but there’s potential for a better system than the one we’ve got, relying on many countries rather than one…
…and all the major players, including the USA and China, realise that.
Unfortunately, getting there is complicated.
In 2008, world stock markets began crashing. A system with no international control over the printing of national money and the issuing of debt was manipulated by the super rich at the expense of almost everyone else. The irony for those of us that hate the biased international banking system is that the world as we know it would likely not exist without Quantitative Easing (QE). There would have been a collapse. As much as justice requires a restart it is also undesirable for those of us living in countries as volatile and violent as South Africa which have the potential for revolution.
QE is “an unconventional monetary policy used by central banks to stimulate the economy when standard monetary policy has become ineffective. A central bank implements quantitative easing by buying specified amounts of financial assets from commercial banks and other private institutions, thus raising the prices of those financial assets and lowering their yield, while simultaneously increasing the monetary base. This is distinguished from the more usual policy of buying or selling short-term government bonds in order to keep interbank interest rates at a specified target value.”
Interestingly, SDR183-billion was allocated in 2009 to help mitigate the financial crisis.
The US and the Eurozone spent trillions on QE which resulted in an unfair market i.e. by protecting their currencies, the exchange market was unfair to everyone else. It should have been illegal but because it was done on such a large scale by massive powers, it was impossible to stop. It served to bolster their exporters and sent the stock market, an instrument of the world’s woes, to record highs. The rich benefited again. Poor and developing countries were at the whims of a market beyond their control. And everyone will remain so, including the rich, if America’s bond bubble (worth tens of trillions of dollars) bursts. America also has to ensure that it’s artificially low interest rate remains low because if it increases it will increase it’s massive debt repayments.
The South African Reserve Bank (SARB) lied that we were not subject to the West’s woes. Our institutions proved as unscrupulous as America’s. The amount of debt owned by the average South African is, by itself, a threat to our economy. It certainly played a part in the dissatisfaction that lead to the Marikana Massacre. Our yo-yo currency has, overall, lost a lot of value to the dollar and the pound. Africa Bank collapsed. Any shopper knows that our low inflation rate makes no sense and, whilst our growth has dropped (currently only 1.4%), our bloated government salaries keep on increasing disproportionately. Our official unemployment rate is bad enough at 25% but many such as myself consider it to be far worse e.g. selling bananas from a stall street does not make you employed or a small business owner. It just makes you desperate.
South Africa is in a bad position dealt further blows by load shedding and water shedding. This is further emphasised by a government that refuses to be held accountable for financial scandals such as Oilgate, the Arms Deal and Nkandla. With the DA and the ANC, the major political parties, refusing to reveal their sponsors there is substance to the public fear that we are a toy for foreign forces.
As a member of the BRICS economies (Brazil, Russia, India, China and South Africa), some see that as some buffer against the West’s financial manipulations but the fact is that these very economies are competing for reform and a greater voice within the IMF. They wish to be players inside the system, not outside! They want to negotiate the best possible position for their countries if the SDR does become the world’s primary financial tool.
The oil price war that began at the end of 2014 further complicates matters. OPEC stands for the Organization of the Petroleum Exporting Countries and includes Algeria, Angola, Ecuador, the Islamic Republic of Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. With fracking in the USA finally proving profitable, it has become a threat to OPEC’s dominance in the energy market. Fracking is expensive so by pushing down the price, OPEC is hoping to ensure their crude oil popularity by making the USA’s energy extraction unprofitable. In only a few months, the price has plummeted 40% and is likely to drop further as OPEC has shown determination by only scheduling their next meeting for June 2015. America may respond by having its larger, global companies buy out the smaller ones or Congress may lift the ban on energy exports. Either way, the market is in for a rough ride and since we are not the one of the riders we can only hope that these horses of power don’t trample our economy further.
This puts Russia in the most difficult position as gas is responsible for half of its economy. How will President Putin respond to the potential collapse of his country? How will it affect BRICS? Will China be loyal? How will this affect us?
Amidst all this, the USA stopped it’s Quantitive easing program this year. The result of that is unknown as it will likely take a year or more to reach us.
Then there’s global instability to consider. Syria, Libya, Egypt and Greece are a mess. Portugal, France and Italy seem likely to follow. Even the Swiss are in trouble.
It seems to be a race between the money system collapsing again and a switch to a safer system, whether that be the SDR or something else.
The world is in a crisis that history will one day name.
So how does one provide for retirement? Or protect if already retired?
I have suggested to my father that if he uses a broker that he should not pay more than 1% on his earnings (i heard just yesterday of a greedy broker charging 5% – after inflation, you’re losing money). I told him to avoid money market accounts and unit trusts. He should play safe with diversity i.e.
- living annuity for monthly expenses
- higher interest 7-day account for emergencies
- 5-year fixed interest deposit with a well established entity
- property with extra rooms and showers built outside so that they can be rented if income is needed (barring revolution which requires a plane ticket and a second home, having something you physically own is the greatest safety net).
I’m definitely not an economist or an investment guru. I’m just a man with an opinion browsing the internet with intent. As level-headed as that portfolio approach seems to be to me, we’re not living in a level-headed world. I’m open to correction and advice.
When the economic storm landed in South Africa in 2009, i was steadfast and mostly alone on my blog when i warned locals (in the tourist town of Knysna where i stay) that hard times would remain with us for a very long time. I was called negative and a doomsayer by those who ignored that my intention was for us to face our economic reality with practicality rather than hope sold to us by the very money dealers who plonked us in this mess.
Unfortunately, i was proven true. Many small businesses shut down and chain stores are rapidly replacing our culture. Some of our brightest have left us in search of greener shores. Our town’s growth rate is the worst it’s been in 5 years. Crime is up. Protests are up. Cars are down in potholes and pipes are bursting. Public confidence in our municipality is at an all time low.
Where this storm will eventually blow us is unknown. All you can do is invest as safely as you can (as i hope my dad will).