Conversations with my friend Arnold on the recent Economic Downturn
this is an extract of an email conversation I had with a learned friend of mine based in Germany about the recent european and US economic woes and how it relates to Zimbabwe. Hope you can glean a thing or two from it.
My dear brother
it was interresting listening to and reading European
and American press and public relation agents blasting the Zimbawean economic
strategy of pumping cash into their economy after the world bank has rejected
lending Zimbabwe cash.
Now it is also interessting listening to and
reading European and American strategy of pumping cash into their economy after
market forces have been pushing their economy to ressesion. (Double interest
rate reduction, Tax cuts, and Low income cash bonds are all strategy to pumping
cash into the economy).
I was thinking on a discussion we had in
Wupertal. To those my brothers who are also keen on financial issues, I'll want
you to reflect on why and how our economic and financial well being should be
developed and sustained without soliciting loans from any lending
organisations.
Hope we can thread and/or exchange ideas on such
issues.
Stay blessed,
Arnold.
My reply:
Grand Obos, How did I know only a big brain like yours will think of
something like this.Well since you asked, let me oblige and say a word in response to your
comment.
If you think about it, money is really a representation of value. In its
paper form, it has not value. So in an environment where there's more value,
there's more money. By value I mean goods and services.Economically speaking, you can pay someone for something that has future
value or will generate future value. For instance, buying a house.
Much of the economic problems we hear of on the radio is due to money that's
been lost due to investments in assets that they(investors) thought will have
future value. This future value unfortunately has (may) not materialised, reason why banks are writing off huge sums from
their asset portfolios and in the process running out of cash.
What the central banks have done then is to issue loans to these banks to
allow them invest more and buoy up their economies. Reducing interest rates also
reduces the burden on loan & mortgage repayments hence guaranteeing return on investments (cash) for the big banks.
In the case of Zimbabwe, there's very little value circulating internally. So
printing more cash simply makes more paper available for very little goods and
services. The net result is inflation (more money being paid for very little
goods & services). What Zimbabwe needs is to generate more value from its resources. i.e
increase production in agricutural products, mining etc and most importantly
find people who are willing to buy them.
However, due to sanctions, there's no investment in their economy at the
moment and most of europe does not want to buy anything from them either which
means national economic output is at a minimum.
Remember, paper money is worthless without any goods or services.
That's really the point I am trying to make.
Nupa
Read my blog at: http://blogs.happysend.com/geraldnupa