Who’d have thought that the only sane central bank governor would be the one at the head of South Africa’s Reserve bank. I salute you Mr. Lesatja Kganyago for being the only pillar of light and reason in the world of central banks gone crazy on the Keynesian Kool-Aid. It’s sad that you won’t last long, the people’s party’s got to print!
Why do I say Mr. Kganyago is the only sane one of the world’s “independent” reserve banks? Because unlike his counterparts across the globe Mr. Kganyago understands that our economic problems have zero to do with the interest rates being charged at central banks. No, Mr. Kganyago understands that South Africa’s problems won’t be helped by a quick injection of easy money.
Let’s look at it from a market perspective. What would happen to the JSE if interest rates were cut? Any smart CEO of any South African Inc. company would know, no wait, would be incentivized to gear up and buy back shares. Their shares are so cheap at the moment you would be a complete moron to look for investment anywhere else.
“But that would be great for shareholders!” Sure it would. The share prices of said smart CEO’s companies would definitely rise, and shareholders would benefit – in the short term.
What happens to South Africa when CEO’s gear up and buy back shares? Nothing. Shareholders (the rich) get richer and take more money off-shore because not a fuck are they going to risk their hard-earned (LOL) cash on productive assets in a country where property rights are up for discussion, Broad-(LOL)-based-black-economic-empowerment policies require you to give away a part of your business, and the government wants to implement a national healthcare system while it can’t even run monopolies profitably.
No South African is currently thinking along the line of, “Well, since the interest rates on loans are down 50 basis points, I can probably go buy that farm now. Hopefully it’s still mine in 10 years’ time.” Or, “Ah, I see interest rates are down 100 basis points, I can go dig for minerals and give a third of my business to a select few based on the color of their skin.” Or again, “Interest rates are down 150 basis points, we can go open that hospital now. I just hope there is still a private healthcare market by 2026.”
No. Lower interest rates fix nothing. They make things worse. They create an environment for financialization. A world where easy money incentivizes unproductive investments above productive investments. I know I would be buying back shares rather than investing in plant and property and create jobs.
Maybe it’s time for every economist in South Africa advocating lower interest rates to go look at themselves in the mirror and ask themselves if they shouldn’t give up their profession and become professors. They’ve all already done that? Oh ok, never mind then.
Is this good for bitcoin? Yes