South Africa Meeting Many Of The Conditions For Hyperinflation
Hey JesSouth Africans
I've been a keen follower of both my local economy and international economies simply because what they do affects my standard of living. As I dived deeper down the rabbit hole that is Bitcoin and cryptocurrency, I began to learn about the economy as a whole. I've read about Keynesian economics, Austrian economics, free markets, MMT, communism/marxism/socialism and all of them have their pros and cons' some have more than others.
What I've noticed is that all these economic systems are by label only and while they have sound principles on each side. Theoretically could work and provide an excellent qualify of life, what they all fall flat on is the ability to eradicate nepotism and cronyism.
Good ideas, shoddy implementation
Fundamentally power will be centralised in any economic framework that has a single point of failure and a single point of distribution. Arguing the merits of capitalism vs socialism in a top-down, centralised fiat system economy is like arguing which shoes are better for you, but you have no legs.
We cannot begin to enjoy what capitalism or socialism can bring unless it is done so in a way where the money has competition.
A local economy like many others
Like many emerging economies, we've been sold the lie that all we need to do is spend our way to economic prosperity. The Americans have set the tone, but since their currency is tied to all international trade, they have a Trump card (pun intended) that other's do not have.
South Africa has plenty of labour, right demographics, fantastic natural resources. Still, we are grossly mismanaged like any African country corruption has kneecapped us along with big government and socialist policies we cannot afford, and we've limp on ever since.
Having such a fragile economy to being with was never going to be easy to handle a lockdown and all that we've seen this year. While many will blame the disease, the economy was sick, to begin with, and this only brings forward what would have happened eventually.
Debt
According to commodity.com, South Africa is sitting on around USD 227 Billion in debt, or which in our local currency is around ZAR 4 Trillion. While this looks like chump change compared to more developed nations debt and BTC, and even companies have a bigger market cap than South Africa's debt, what we need to account for is relativity.
This leaves South Africa with a debt to GDP ratio of 60.48%, which means we have less than half the way to go to complete Japanification in a sense.
Public Debt (% of GDP)
As you can see from the data below, our debt to GDP has continued to rise even before all the lockdowns and drama. In addition, the theory of diminishing returns comes into play.
| Year | 2013 | 2014 | 2015 | 2016 | 2017 | 2020 |
|---|---|---|---|---|---|---|
| Debt pecentage | 44.1 | 47.0 | 49.3 | 51.6 | 53 | 60.48 |
Governments think they still have plenty of room to deficit spend, and because they've done it in the past, it will continue to work.
Unfortunately, fiat cannot create production, esepcaully in a lockdown economy, so it's not that we're only spending but that our GDP is shrinking, putting pressure on both sides.
The South African government has already spent ZAR 500 billion with another ZAR 78 Billion on the way in IMF loans, around USD 34 Billion.
Repaying the debt
South Africa has $11,930,100,000 in interest on the debt alone, and since the majority of it is dollar-denominated, it makes it harder to pay back. At the moment for us to meet our debt requirements, each citizen should be producing $4 161 (ZAR 70 000) of taxable income per year just to service it.
I can tell you now from looking at South Africa's tax receipts that is simply not going to happen. It's near impossible; we're basically a zombie country at this point since we cannot afford to service the interest on our debt, never mind the eat away at the principle.
High unemployment
South Africa has always had high unemployment in general, hovering around the 27% range for years, as of this year it's begun to skyrocket, and is way above 30% and getting worse each month, I won't be surprised if we're in the high 30s low 40% rage with over 10 million jobs last this year already.
Creating employment will be far more expensive than we think and getting people back to work to improve the velocity of money and a rate of production to cover our deficit, I see mathematically as an impossibility.
Velocity of money
As jobs are lost, as people save, as banks foreclose, as lenders tighten up, we will see people save, regardless of the low-interest rates we are given. The velocity of money is at an all-time low, yet we don't feel it yet. Normally CPI (Consumer price inflation) tracks at around 18 months behind the velocity drop, so even if we do see a recovery the inflation tracking with money velocity is going to hit us like a tonne of bricks next year or early 2022.
Consumer inflation
Having so many poor people, so many on the fringes, so many middle class levered up, so few having savings, so many on government assistance means that there is a large population who all can and will have similar spending habits. When we see so many people chasing a specific set of goods and with a limited production, we will see significant price inflation in the areas of the economy that count the most, and that's food.
This one is a double-edged sword, if we cannot feed our people we either have to continue to deficit spend to try and secure product from overseas or fund to get production up and running to meet the demand and stabilise prices.
As the price of food goes up, so does the cost of living and labour and so it puts pressure on every transaction to provide more margin and more profit to try and absorb the shock.
Devaluing of the currency
To repay the debt, to stimulate the economy and to get any sort of recovery going, the government will have to borrow and spend. They talk about a debt ceiling, but I see no way they'll let them stop it, 100%, 120%, 150% of GDP, anything to try and spend their way out of this mess.
Paying back the debt with the dollar increasing, paying for growing social programs, paying for economic stimulus, paying for payroll protection and all this, may seem like a good idea to some, but it costs us all.
Anyone who holds a Rand in their bank account is effectively picking up the bill for these destructive policies.
I have no hope in the South African government and banking system to pivot to any other strategy but inflate the debt away through hyperinflation.
Early, but not wrong
Perhaps I am a little early, but I'd instead make the right call early on and lose in the short term to win in the long term. I'm still young enough to be able to recoup anything I lose in these trades and have marketable skills to generate cash flow, so I'm not too worried going forward.
I am very concerned by these numbers and have slowly started to get out of the Rand, moving either to USD or to Satoshis instead. I don't mean to be a doomsayer. Hopefully, South African's will be able to rally during these times, and as always we will adjust to new pricing ranges in nominal terms.
The ones who need to worry are those who have saved cash, it's leaking its purchasing power at an insane rate, and if you do not move it into inflation-proof asset classes, you're going to lose out.
Protecting against my downside
At this point, I'm trying to protect what I've saved more than trying to make money and if I do make a few pennies extra by betting on these asset classes, then all the more reason to take on this strategy.
Most of the country will see things as business as usual since they're kept ignorant by the state and clueless local economists who are not fit to give an opinion. All they are, are what we see in crypto, paid shills. Naturally, they dedicated their lives to studying flawed economics, and this has lead them not to have the ability to think outside the confines of the system.
They perpetuate myths of opportunity and salvaging something that is, by definition, systematically broken.
Have your say
What do you good people of HIVE think? Is the South African Rand circling the drain?
So have at it my Jessies! If you don't have something to comment, comment "I am a Jessie."
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