A GEOLOGIST told me: “When God drew the national boundaries, he employed a geologist who knew where all the valuable minerals are. He drew the boundaries accordingly, making the nation into the richest in Africa.”
- He then made sure that Zimbabweans are the best educated, by far, on the continent.
- Zimbabweans are best able to understand new ideas too. Since Wednesday last week they have been looking at some of the following ideas on a ministerial and economist level.
- Every other nation in the world, never mind regional body SADC, got it wrong when it comes to designing their financial framework. There are ways which can enable businesses and people to make plans which will not be violently disrupted by economic events which have nothing to do with what they were doing. Now Zimbabwe is set to change all that. Zimbabwe is ready with a university course to teach its key players how to do that.
This combination will likely take Zimbabwe into a leading position in the region much more quickly than anyone thought possible.
- First, they will create their own currency as explained last week. Zimbabwe’s banking system will recover within three months.
- Then they will redesign their financial framework.
If you were designing an aircraft, you would design the airframe to fly without a pilot. It would be stable and adjust itself to the up and down drafts hitting it along the way. Only then would you try to manage the flight with a pilot and instruments of control.
It is the same with economics.
The skills needed to design the framework for economies to ‘fly’ are those which are learned by financial advisers and financial product designers. Control systems are taught to engineers. This combination is not taught to economists in any full detail, which may explain the absence of these key ideas from their textbooks.
There is a summary of my book here.
WHAT MAKES A STABLE FINANCIAL ECONOMY?
Here is an outline of the new savings and lending contracts and why they are essential:
If too much money gets created and inflation goes up, the excess money gets mopped up in higher prices and incomes, costs, values, savings, and pensions. The inflation then dies without any intervention.
HERE IS HOW
- As incomes rise, and as spending rises, interest rates will rise and the value of your home will rise (not fall) as people on higher incomes can then borrow more to buy it.
- What people can borrow as a multiple of income will no longer be closely related to the rate of inflation or the resulting rate of interest. This will stabilise the value of your home, factory, and other buildings. With stability, lenders may lend a higher percentage of its value.
- Your mortgage repayments will not rise faster than National Average Earnings, NAE. In fact, they may fall compared to that, not once, but every year. This table shows how that looks if average earnings/incomes are not rising. You are repaying wealth with interest. More at first, less later.
- Lenders’ mandatory reserve ratios may fall.
- For lenders, cash flows will be easier to manage, and lending costs will fall. Those two savings can be passed on in reduced interest.
- The maturity value of government securities/bonds/treasuries will rise and the interest rate of only around 1% will stay the same, but the payout will be rising with the rising value of those bonds. Rising GDP and tax revenues will fund this.
- Your pension fund and its payouts will rise accordingly.
- The equity market will not be disrupted.
- The property market and the construction industry will carry on as before. There will be more permanent employees, efficiency will rise, and more homes will be built.
- Business finances will take advantage of similar changes, enabling significantly more to be borrowed at less risk.
Read more details here.
It is better that money does not fall in value too fast because these variables don’t all rise at the same time. Some people get left behind. That is why we need control over the rate of money creation.
WHO LIKES THIS NEW MODEL FOR LENDING AND SAVINGS?
- The ex-CEO of Old Mutual Central Africa and CABS building society, Graham Hollick, took just two minutes to see the merits. But it needs new legislation.
- The top people at London’s Institute of Actuaries told me face to face that it was a good idea because of the implications for stabilising the entire economy. In fact, the FIA told me he would never forget that day.
- Timothy Hosking, a building economist, says this is essential to social harmony as well as the economy. After studying 40 macro-economic models he says this is the only one to solve that problem.
- Professor Makina at UNISA, who marks banking exams, is fascinated.
- Andrew Pampallis, former head of banking at the University of Johannesburg, says this is critically important.
- Dr T Chowa mentored two students through their MSc exams based on researching the same new lending ideas but without telling them so. They both passed, the first with distinction.