RUSSELL LAMBERTI: Ace’s quantitative teasing and the magic money tree
Ace Magashule bungled the words when calling for QE last week. Call it what you will: printing money is a recipe for hyperinflation and disaster
Last week, ANC secretary-general Ace Magashule announced that the ANC had resolved to do "quantity easing", by which he meant "quantitative easing" (QE), by which he meant "printing money", by which he meant, in a nutshell, "gimme".
That an ANC heavyweight would come out so brazenly for printing money came as a shock to many. It shouldn’t. The ANC’s kleptocratic wing has long coveted the Reserve Bank money machine, much to the socialist wing’s vexation. The socialist wing prefers the more orderly acquisition of lucre with obscene budget deficits, relentless tax hikes, suffocating regulation and audacious BEE deals. But the kleptos are less patient, preferring the more direct route of tenderpreneur fraud, bribery, misappropriating taxes and, they hope, eventually printing new, free money.
Very occasionally, you get socialism and kleptomania all rolled into one package, like the EFF. The result is a productivity slump (thanks socialists) and money printing (thanks kleptos), a toxic brew which gives you hyperinflation — which is the story of Venezuela and Zimbabwe. Hyperinflation is mass impoverishment. It is economic ground zero.
The ANC’s kleptocratic wing has long coveted the Reserve Bank money machine
It would be a worst-case scenario for SA if Magashule’s "quantity easing" dream turns into hyperinflation. Already, it is the destructive reality of Zimbabwe, which Philip Haslam and I described in our book When Money Destroys Nations.
Surely the ANC would not plan for such chaos? Well, yes — it wouldn’t. But history has shown us that printing money always starts slowly, with seemingly innocuous consequences initially. It even feels pretty good at first. It fools people into thinking there’s more wealth than there actually is. This deception causes the country to save less and consume more, so less money is set aside for replenishing capital.
Illusion of wealth
But sooner or later, all the new buying power sloshing around causes prices to rise. As inflation accelerates, we begin to realise we’re not wealthier after all. Worse: we begin to realise the illusion of greater wealth caused us to consume too much, and we’re worse off.
Typically at that point, governments have two options: stop printing money so the economy can recover, or double down and print more. Many governments stop here, but the most corrupt don’t, because even though printing money impoverishes most people, it benefits those who can get their hands on the new money first and buy things before prices rise — like mansions or jets.
But hang on, you say. Didn’t all the rich countries print lots of money to bail out their banks and their governments without causing inflationary chaos in 2008? Well, sort of. But the wealthy countries that control global finance with their powerful governments and their enormous financial systems are not quite SA, are they? The wealthier and more dynamic the economy, the more the damaging effects of money printing can be obscured and deferred. But these effects can’t be fully overcome.
The pernicious consequences of QE are visible. Measures of wealth inequality are rising, creating political anxiety. Employment may be up in the US, but the quality and productivity of the jobs appear to be down. Banks remain commercially fragile, and asset inflation makes acquiring wealth harder for overindebted families. Ten years after the "temporary measure" of QE began, it is still here — and politicians want more.
So if the major economies were "rescued", why are they still printing money? Are they addicted to this drug? We’re different, they argue: we haven’t seen higher inflation in goods or services, so what’s the harm? The fact is, at best, the jury is out on rich-country QE. Judging it a success in the US is hopelessly premature. We can be more certain, however, that when small, struggling, asset-shallow and politically risky countries try to print money for their politicians and oligarchs, the economic gods are far less forgiving.
Magashule has since backtracked, insisting someone hacked his Twitter account. Who you gonna believe: Ace or your lyin’ eyes? Perhaps it’s a bullet dodged for now, but this isn’t the first attempt to turn the Reserve Bank into government’s magic money tree, and it won’t be the last. Welcome to the Sarb Wars — a fight the bad guys must not be allowed to win. SA is simply too fragile now.
• Lamberti is founder of ETM Macro Advisors, and co-author of When Money Destroys Nations