Applied Philosophy

When I wrote Zimbabwe’s Monetary Policy that country was at the peak of its hyperinflation, since then a lot has happened: A unity government, the sacrifice of sovereign rights on the alter of international finance, a resumption of the economic movement of society, et cetera.

In this post I will examine a document from the website of the Reserve Bank of Zimbabwe “December 2009 Monetary Policy Statement: Consolidating the Gains of Macroeconomic Stability” a most interesting document as you will shortly see dear reader.

First the limits of the Policy Statement:

1.2

In drawing this policy framework, the Bank is also guided by Government’s overall short-term, medium and long term economic and social programmes, as recently enunciated in the 2010 National Budget that was unveiled by the Hon. Minister of Finance on the 2nd of December, 2009, as well as the Three Year Macro-Economic Policy and Budget Framework 2010-2012 (STERP II), which was unveiled on the 23rd of December, 2009.

1.5

Under the current multiple currency system, which STERP II has clarified that it will still be with us by 2012, the Central Bank will primarily focus on the following key areas, which form the nucleus of the Monetary Policy activities and priorities over the next 6 months:
(b).
Contingent upon the availability of resources, the Bank will perform the lender of last resort function to ensure continuity and stability in the financial sector’s intra-day trading activities;
(d).
Implementation of the country’s Exchange Control Guidelines and Regulations in a manner that strikes a fine balance between maximising the virtues of economic and trade liberalisation and the need to ensure that the country gets maximum value for its exports shipped out, whilst also getting full value for import payments effected at all levels in the economy;
(f).
As Banker to Government, and as is spelt out in the statutes, the Central Bank will continue to manage the country’s gross international reserves position, including the holding of the Special Drawings Rights (SDR) accounts at the International Monetary Fund (IMF), with Treasury charged with the actual usage of the funds therein;

Notice how the role of ‘lender of last resort’ is contingent upon the availability of resources; in reality the RBZ cannot be the lender of last resort; further on I will quote a paragraph that states just that.

The moment that Zimbabwe gave up its sovereign right to issue and regulate its own money it gave up having a lender of last resort.

Western banks can gamble knowing that their central banks will bail them out, while third-world countries with currencies pegged to foreign money are out-bid on national assets and sometimes completely bought out.

These limitations are quite different from the situation a year ago:

1.7

The events of the 2004-2008 epochs, where virtually all aspects of public sector policy implementation were thrust on the Reserve Bank were a survival necessity that should be avoided now and in the future through robust policy formulation and implementation across all structures of Government.

1.8

The Reserve Bank is on record saying that we will not interfere in any areas outside our statutory mandate if those responsible for those areas are doing their job.

That is exactly why all countries have given up gold and silver and adopted fiat currencies: control. Money is the blood that circulates in society, carrying value from one place to another. Government should control society by political, moral and religious authority. A corrupt government will try using money to effect social movements in its favour, the ultimate result of that is fiat currency and tyranny. Zimbabwe’s hyperinflation only revealed this hidden aspect of modern society.

The last points of the first section might be the most important:

1.11

The Reserve Bank wishes to once again reiterate the inescapable truism that for as long as Zimbabwe remains under the hurdle of the illegal sanctions imposed on it, the fragility of the economy and the current multiple strains on its vital social sectors will be elongated over the outlook period.

1.12

This will continue to slow down the pace of meaningful resource mobilisation, investment promotion and vibrancy of the productive sectors of the economy.

Sanctions are the modern form of medieval sieges, the only difference is the number of people affected. A siege might affect ten thousands and kill a few hundreds, while sanctions affect ten millions and kill hundred of thousands.

I repeat what I wrote before:

Domestic poplar support in the west for such inhuman, unjust and illegal sanctions is the prelude for inhuman, unjust and illegal domestic restrictions; sooner or later societies will pay for their crimes (see The Seven Deadly Sins of Society).

We move forward to the second section and the state of the banking sector:

2.6

Our banking sector is now largely dominated by commercial banks following conversion of lower level licences in recent years.

All investment banks in the US have transformed into bank-holding companies, to be able to tap the Fed in case of a credit shortage.

The RBZ have been very innovative during the last few years, coming up with total new financial systems every six months or so; let us see if their latest idea’s have taken off:

2.7

In my previous Monetary Policy we advised that the Banking Act [Chapter 24:20] had been amended to provide for the licensing and supervision of microfinance banks by the Reserve Bank.

2.8

To date the Reserve Bank has received two applications for Microfinance banking licences, which are currently under consideration.

So micro-usury did not take off in Zimbabwe they are better off (see: Micro Credit is Usury), but the important question is how did the banks weather the end of the hyperinflationary storm:

2.12

The introduction of the multicurrency system necessitated the restatement of banking institutions’ balance sheets to take into account the value of assets which in conventional accounting terms had been depleted to zero, following the period of hyperinflation. The take-on balances were confirmed by the banks’ external auditors.

2.13

As supervisory authorities and in agreement with the accounting / auditing profession and the IMF, the Reserve Bank accepted restated values of owner-occupied and investment properties, subject to prudential “haircuts”, as part of qualifying capital.

Assets depleted to zero, i.e. debts hyperinflated away. The bank might have a note of one million, but can not collect because the smallest currency bill is worth ten millions. The solution was the same one used in Weimar Germany, but instead of the central bank mortgaging the property to back the currency in Zimbabwe it was the private banks that mortgaged the land and property to back their balance sheets.

You might wonder dear leader how the banks survived if their assets have been reduced to zero, easy: banks function according to the principle of the balance sheet, everything they lend (i.e. asset) is balanced by something they owe (i.e. liability); assets as well as liability were inflated away, including customer saving accounts.

Let me illustrate with a story from Germany circa 1922, it goes like this: A gentleman had sixty-thousand marks in his saving account. The bank sent him a letter telling that his account has been closed and they are sending him a one million mark banknote because that is the smallest available banknote in circulation. The punchline of this story, the post stamp on the letter was worth five million marks!

Save your fiat money in usury-banks and you will lose it all; it happened in Germany, Hungry ,Thailand, Argentina, et cetera.

Impact of the Global Financial Crisis

2.29

The effects of the global financial crisis have been far-reaching, affecting both the financial and the real sectors of the economy. The most evident impact of the crisis is declining demand for local and regional exports, depressed global commodities prices, job losses and currency dislocations.

2.30

The level of international capital inflows, including foreign aid, has also declined, as countries attempt to consolidate their financial positions.

2.31

Access to both international and regional lines of credit has been constrained, contributing to market- wide illiquidity and hampering effective financial intermediation by the banking sector, particularly, to the productive sectors of the economy.

Poor weak countries that open their markets to international foreign capital play a very dangerous game against an opponent who holds all the cards and changes the rules to suit himself, the only outcome is loss of national capital & resources.

Countries that become specialised exporters, following the fake advise of Western experts will be under the mercy of circumstances playing out on the other side of the world:

The eruption destroyed millions of flowers—in Kenya Floral exports make up 20 percent of the Kenya’s economy—and they have been completely shut down by Europe’s flight ban. The head of the Kenya Flower Council told the BBC that local growers have been forced to destroy 3,000 tons of flowers since last week with devastating effects on the local economy.

—Iceland’s volcano: 9 strange facts

Most of these countries have opened up their markets to receive aid from the West. Aid to Africa is one tenth of the money removed from Africa and even that small amount is used to implement policies favourable to the giving power (see Michael Hudson’s book The Myth of Aid). We saw that clearly with Zimbabwe, aid withheld when the people were dying in the street and given when a pro-Western government came to power.

Credit Reference Bureau
2.34

The Reserve Bank encourages banking institutions to consider funding the setting up of a Credit Reference Bureau.

2.35

The establishment of a Credit Reference Bureau will provide a central database for credit information sharing which will, among other things, augment credit risk management, and provide the requisite support infrastructure for the implementation of Basel II.

Such agencies as the ‘Credit Reference Bureau’ are not set up to protect the consumer from bad loans, but instead to protect the lenders from borrowers. Note how the banks are going to set up this agency and not the state, because it will function to their benefit.

When a lender decides to knowingly lend to people with bad credit and then sell these loans as triple A loans you get a ‘sub-prime crises’.

Zimbabweans should not borrow money because the Credit Reference Bureau give them a high score or a passing grade, forewarned is forearmed.

But banks are secondary, let us examine what is happening in the real sectors:

3.33

In terms of debt owed to Non-Paris Club members, China remained the largest creditor at US$323.4 million, followed by South Africa (US$16.3 million) while the balance is owed to Saudi Arabia (US$1.6 million) and Israel (US$1.2 million).

China is moving into Africa, their influence will be short lived as they face collapse of central government in less than thirty years (see: The Future History of China Today)

Gold

3.62

Gold output is estimated at significantly increase from 3 072 tonnes recorded in 2008 to 5 tonnes in 2009 [should read: from 5 tonnes in 2008 to 3702 tonnes in 2009]. This is largely due to the late resumption of operations by gold miners.

3.63

The liberalisation of gold marketing introduced in 2009 has, however, allowed gold mines which had suspended operations to resume production. In addition, the issuance of gold dealership licences to gold producers has resulted in mining houses securing lines of credit, critical in increasing production.

3.64

As a result, Zimbabwe’s largest gold mine, Metallon Gold, which had closed down its five mines, has since re-opened two of its mines, and is expecting to reopen the other three by year end.

3.65

In addition, capital injections allowed Mwana Africa to re-open its Fredda Rebecca mine and enabled it to complete its first phase of operations in September 2009.

3.66

Gold production as at November 2009 stood at 3 700 kgs.

Interesting developments in golds. I wonder what happened to all that gold though?

4.18

Since the liberalisation of Gold exports in January 2009, the country has exported Gold worth USD106.32million as at 31 December 2009.

$106 million is about 3700 kg worth of gold. Gold out, worthless dollars in. The 3,7 tonnes of gold would have produced 950 thousands zimbi’s (see: Hight Treason in Zimbabwe), more than enough for circulation. Building an economy based on a stable gold coin would have made Zimbabwe the only country in the world with a non-fiat currency, that would have been a magnet drawing capital from the moon itself!

3.81

In the absence of a lender of last resort facility and a non functioning interbank market, banks are not prepared to over expose themselves through increased lending to private sector.

3.82

The perceived high credit and liquidity risks in the country have seen banks forgoing returns on lending to productive sectors by depositing their excess funds offshore.

3.83

Financial institutions’ foreign assets are largely composed of deposits with foreign corresponding banks. As at October 2009, deposits with foreign banks accounted for 51.2% of foreign assets.

“In the abasence of a lender of last resort”! what happened to statement 1.5(b): “the Bank will perform the lender of last resort function” you might ask dear reader. Well that was only contingent on the availability of reserves. In most third-world countries the central bank can print its own currency but because of liberal capital regulations it has to defend the value of the currency in the open market with reserves. The result is that credit is withheld by the central bank resulting in the same situation as in Zimbabwe. Again the hyperinflation of Zimbabwe did not create these conditions it only exposed the cover.

The crazy situation in Zimbabwe where the savings of the people are lent to foreign banks who bankroll their own companies to go into Zimbabwe and buy all the assets, is the same one prevailing in almost all of the poor countries of the world. The world is currently lending money to the raiders of Wall Street to buy their assets and national resources.

Poor countries in Africa, Asia and south America who open up their small weak markets to the powerful forces of international capital and finance imperialism will never have a “monetary policy” because they have already given up their destiny. The slaves of Rome had more control of their destiny than these wretched sovereignties.

I leave sections 4 & 5 to the curious reader.

In Zimbabwe’s Monetary Policy I wrote the following:

The public in the west has completely accepted the neo-colonial narrative that blacks (and other non-Europeans) are unable to govern themselves, that not only they must adopt western ideologies but also westerners should supervise them. The most corrupt political administrations, currently under investigation, unashamedly talk about ‘teaching’ Africa ‘good governance’!

A Zimbabwean commentator sums up my sentiment when he writes:

“THE overriding principle of global politics as defined by the collective foreign policy of Western elites is centred on the vainglorious assumption that misdeeds are only performed by others while the West is only culpable for inadvertent errors or oversights.

The Western media has no problems portraying to the world the lucidity of the democracy of their own countries while they bestow upon themselves the righteous role of being the custodians of the feelings and emotions of people in far away less developed countries.

The furious denunciation of the crimes of others is but one specialty of many journalists in the mainstream Western media.”

-Western Double Standards Exposed by Reason Wafawarova, 22 March 2009

Here is the latest example of Western commentary on Zimbabwe’s situation:

“The currency with the never-ending string of zeroes is quickly fading into history, just two months after the latest notes were printed by the inexhaustible central bank. Also disappearing is Zimbabwe’s phenomenal level of hyperinflation, which last year reached a stunning 89.7 sextillion per cent (a number expressed with 21 zeroes), making it the most extreme hyperinflation crisis of any country in modern times.

Zimbabwe’s new coalition government has cracked both problems with an absurdly simple solution: It has abruptly switched to foreign currencies, allowing customers to pay for products with U.S. dollars or South African rand or Botswana pula.
…
Empty shelves have been filled. Prices of staples such as milk and eggs are still twice as expensive as in neighbouring South Africa, but they are half as expensive as they were in January. People are shopping again, and merchants are stocking their inventories again.

Those goods are still unaffordable for many people, of course. The unemployment rate is estimated at 94 per cent, wages are often unpaid, and the vast majority of people are dependent on donated food rations.
…
Investors, including Canadians, are watching closely. Toronto-based Caledonia Mining Corp., which suspended production at its Blanket gold mine in Zimbabwe last October, is considering a reopening of the mine within the next few weeks because the new government is promising that producers can export a much higher percentage of their production. The mine could produce up to 40,000 ounces per year.
…
As recently as the early 1990s, Zimbabwe was one of Africa’s leading economies. Its decaying infrastructure could be still be revived, especially if the government is able to halt the invasions of the dwindling white-owned commercial farms that have plagued the agricultural sector for the past nine years.

One study has predicted that the country could be self-sufficient in agriculture within a year if the invasions were reversed.”

-How Zimbabwe slew the dragon of hyperinflation, March 23, globeandmail.com [my emphasis]

One: Solving hyperinflation by dollarisation is like curing cancer by taking the patient outside and shooting him execution style. Hyperinflation in Zimbabwe has not been solved; instead Zimbabwe’s new government has relinquished the people’s sovereign right to issue money and opened the country to the barbarians.

Two: Again we must ask the same old question: What good is ‘filled shelved’ if the average consumer cannot afford to buy anything? All over the world workers do not earn enough to consume their own products forcing whole countries to depend on the export sector for growth. Now countries like Germany, Japan, South Korea and China are crashing because the world’s only consumer-market, i.e. the US, has crashed.

Three: Of course there will be foreign investment coming into Zimbabwe, if the unity government holds, and there will be a tremendous boom (relatively speaking). The question is will the economy of Zimbabwe be sound or not. Argentina crashed in 2001, after about two decades of Western-cooked neo-liberal polices, then it followed monetarist receipts and an export-boom followed for a couple of years only for Argentina to come back at exactly where it was eight years ago: at the brink of collapse!

The only thing the policies of the unity government will achieve is to re-connect Zimbabwe to the global system and turn it into another resource-exporting country with no national industry, wealth-accumulation or national currency. Russia, who is still a sovereign country, is crashing because the price of natural resources has crashed and its economy crumbling under the weight of dollar-denominated debts; does anyone believe Zimbabwe will fare better in the globalised economy?

All the world’s trade is currently being harnessed by dollar-hegemony and directed towards the only country on the face of the world that can print as much dollars as it wants: The United States.

Trade, which, like blood, should circularly flow,
Stopp’d in their channels, found its freedom lost:
Thither the wealth of all the world did go,
And seem’d but shipwreck’d on so base a coast.

-John Dryden, The Year of Wonders, 1666.

Four: This is what I like to call: Pure Knavery! I tried to put the white-owned farms in Zimbabwe in context in Zimbabwe’s Monetary Policy, this is a very complex subject and has historical roots most western readers not only ignore but also refuse to consider altogether. It suffices to say that white-owned farms were predominantly cash-crop farms growing tobacco for export and not food for the poor of Harare, self-sufficiency can only be achieved by communal farming, an anathema to neo-liberal ideologues-no wonder the world is facing a famine.

The latest news from Zimbabwe:

“Zimbabwe badly needs Western donors and foreign investors to rescue its economy but external help will depend on the creation of a democratic government and reforms such as reversing plans for nationalization.

Economists said if the Washington-based IMF really was looking at a package, it would be designed to force a switch from Mugabe policies such as the printing of money and seizure of land that have caused hyperinflation and economic collapse.

“It will be extremely fussy with the conditions,” Harare-based economist John Robertson, who has met previous IMF and World Bank delegations, said. “They will set very tough conditions, which we deserve because we have behaved badly.”"

-Zimbabwe says IMF ready to offer immediate help, Reuters [my emphasis]

The “Western donors” are already on the move:

“Australia ended a long-standing ban on non-humanitarian aid to Zimbabwe Wednesday, saying it wanted to help Prime Minister Morgan Tsvangirai relieve the suffering of his nation’s people.
…
Australia had repeatedly called on Zimbabwe President Robert Mugabe to step down, imposing financial sanctions and travel bans on members of his regime, prohibiting arms sales and cutting defence and ministerial links.”

-Australia lifts ban on Zimbabwe aid, AFP [my emphasis]

Australia was more than happy to let the people suffer until they “democratically elected” the candidate wanted by the West.

The IMF delegation to Zimbabwe is the modern day equivalent of a punitive expedition going up the Zambeze river to punish the insolent locals, who thought they could exercise sovereignty in the face of world-dominating imperial rule, helped of course by comprador politicians and self-flagellating economists.

The newly installed prime minister of Zimbabwe, Morgan Tsvangirai, is the worst kind of traitor; he has just surrendered the sovereign right of the people of Zimbabwe to issue money to the United States:

“Zimbabwe’s prime minister, Morgan Tsvangirai, has taken an important step toward establishing the new power-sharing government’s credibility by fulfilling a commitment to pay the army and other public-sector workers in dollars because the national currency is worthless.”

—Zimbabwe starts paying soldiers in US dollars, 19 Feb, The Guardian

From now on all assets in Zimbabwe will be priced in US dollars:

“Zimbabwe shares, battered by the world’s highest inflation rate and a decade-long recession, may rebound after the stock exchange reopened yesterday from a three- month suspension with listings re-denominated in U.S. dollars.
…
Reopening the exchange was one of the first steps by the coalition government formed last week as part of a power-sharing agreement between Mugabe, 84, and opposition leader Morgan Tsvangirai.
…
Zimbabwe may be forced to use a combination of the dollar, the rand and other currencies, Tsvangirai said.”

—Zimbabwe Stocks May Soar as Bourse Reopens in Dollars, 20 Feb, Bloomberg

Dollarisation of the economy is the worst kind of high treason, because it surrenders one of the most important sovereign rights of the people, giving up parts of the country (as the Germans did at the end of the Great War) is the height of honour compared to it. Even the most inflated fiat currency in the history of the world is preferable to this!

If they have any US dollars (they don’t) they should then send it all to the mint in South Africa and request the following coin:

Every one troy ounce of pure gold would make eight zimbi’s. The low weight and purity would ensure that there is no foreign demand for the coin from investors.

As to the Zimbabwean dollar, they would stop printing it but keep accepting it for public debt and taxes. People will pay the government with dollars while accepting only zimbi’s, very quickly all the dollars will be absorbed and there would be only zimbi’s.

The state can also exchange one zimbi for 4.66 gram of 22K gold (or equivalent), thus putting a 10% seigniorage on the coin; for every thousand coin given to the public the state makes a profit of a hundred zimbi.

The zimbi would have turned the monetary system of Zimbabwe from the weakest on Earth to the only one based on gold, thus ensuring that Zimbabwe becomes the world’s only country with a trustworthy currency. Capital would pour into Zimbabwe from all over the world and its economy would boom. The opposite is now happening:

“Reconstructing Zimbabwe may cost as much as five billion US dollars (four billion euros), Prime Minister Morgan Tsvangirai said Friday as he opened his hands to neighbouring countries.
…
Motlanthe said South Africa, chair of the Southern African Development Community (SADC) bloc, had directed regional finance ministers to develop a plan to help Zimbabwe, and again called for sanctions to be lifted.”

—Reconstructing Zimbabwe may cost $5bln, 20 Feb, AFP [my emphasis]

They might not have dollars ‘printed’ in the US, but they certainly do have gold mined in Africa:

“The Vice-President of Zimbabwe has been accused of trying to sell millions of dollars in gold nuggets and diamonds in defiance of international sanctions.
Joyce Mujuru used her daughter as a go-between to seek a deal for the gold, according to Firstar, a commodities trader based in Britain, which says that it was approached in November.
…
Firstar claims that Mrs Mujuru’s daughter and Spanish son-in-law, Nyasha and Pedro del Campo, offered to sell 3,700kg of gold for $90 million to Firstar Europe Ltd, a precious metal dealer. At the present market rate, one kilo of gold sells for $30,700 (£21,500). ”

—Zimbabwe’s vice-president foiled in 3,600kg gold deal, Times Online

Three tonnes of gold (let’s assume the 700kg pays all the costs) would make 771,803 zimbi’s; instead of using it in their own country they want to send to Europe in exchange of ‘paper’!

Successive Chinese dynasties built and maintained a magnificent wall to protect their empire. The Ming dynasty (an ethnic Han dynasty) maintained this great barrier and improved it to protect itself from the Manchu tribes in the northwest. The tribes were never able to overcome the wall, but a disgruntled general (Wu Sangui) decided to open the gates at Shanhai Pass and let the Manchu tribes enter.

The result was the fall of the Ming dynasty and its replacement by the Qing dynasty, a non-Han dynasty. The Qing changed China in a way that weakened it—they weakened the cultural bonds of society to bolster their domination—and laid it open to the Western powers in the nineteenth century. China has yet to restore its place in the world after four hundred years of one general’s treasonable act. Morgan Tsvangirai has just opened the gates of Zimbabwe for the barbarians.

When third world countries that had adopted the so-called ‘socialist’ system started to collapse in the seventies and early eighties they pointed to the future of the whole socialist block, they were the canary in the mine. The imported system with its western symbols and nomenclature was grafted by force on these countries’ societies, this left them extremely weak and so they failed before the countries that exported the system to them did.

The grafting of western liberal democracy on weak third world countries-with imported symbols, nomenclature, foreign educated leaders and deadly force where resistance is encountered-has already produced several victims: eastern Europe, the Asian Tigers, Russia, Argentina and last but not least Zimbabwe.
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