The whole world is looking at their governments for solutions to the economic crisis as the Alpha and the Omega. This especially the case in South Africa.
But the government should spend less, not more, to assist economies.
Governments should retreat and stop interfering in markets.
Under intense pressure of the ANC voters and trade unions, the SA government is going to spend more on projects "that will create jobs".
We know, and they now, the job creation is only for a short while.
The biggest problem is that it will not create wealth as "the government takes from the people in order to give to the people".
So the net result is "zero". J.M Keynes would have been proud.
But OK, it will keep everybody busy for a while.
We wish the new SA government well, but unfortunately they will fail. Then they will ask why the private sector is not creating more jobs.
And with the expenditure comes the increase in money supply (printing of money) which in turn will create inflation over and above the level we are at the moment used to (10% officially - 20% actual).
The Moral of the Story: Buy physical gold. It is your only insurance against inflation.
Gordhan ‘open to debate’ on inflation targeting
Business Day, May 13th, 2009
FINANCE Minister Pravin Gordhan startled local markets yesterday by saying inflation targeting would be “debated”, but his comments were not seen as a sign the policy would be scrapped.
Inflation has exceeded its 3%- 6% official target range for two years, and the Congress of South African Trade Unions has campaigned vigorously for a review of inflation targeting.
The policy of inflation targeting — adopted in SA in 2002 — is coming under scrutiny worldwide, with critics saying it may not be the best way to manage an economy.
“We want to engage, we want to talk, we want to debate, we want to discuss,” Gordhan said on SAfm yesterday in reply to a question. “We want to have all role players in one room for as many days as is necessary so we can have the different perspectives on the table and emerge with a consensus on how we manage these sorts of issues in the best interests of SA.”
Government bonds weakened on Gordhan’s comments, which markets took to mean President Jacob Zuma’s new government may tolerate higher inflation than the Mbeki administration did.
Yields on the R157 bond due in 2015 rose by 14 basis points to 8,22%, pricing in the likelihood that inflation — and interest rates — will be higher than expected in the years ahead.
Analysts believe that while there is a chance the Reserve Bank’s inflation targeting mandate will be modified slightly, monetary policy is unlikely to be affected.
Interest rates have fallen by 3,5 percentage points since December, and further cuts are expected in response to data confirming that SA has joined the global recession.
Goldman Sachs economist Ashok Bhundia said SA’s inflation targeting framework could be tweaked with the addition of a growth mandate, similar to the aims of the US Federal Reserve.
“This would not affect the conduct of monetary policy because the Bank has de facto taken a very flexible inflation targeting approach,” he said. The Bank’s monetary policy committee made clear this year that it takes fallout from the global financial crisis and recession into account when it makes interest rate decisions.
There has already been a long and lively debate between the Bank, the government, and trade unions on inflation targeting. Absa Capital economist Jeff Gable said the heat came off the issue when interest rates started to fall last year.
“My sense is that the very intense pressure for a meaningful revision of the target that had been witnessed through 2008 is now much diminished and the threat of a big change in policy is small.”
Gordhan’s choice of the word “debated” could actually mean “discussed and reconfirmed,” Gable added. Bhundia has a similar view.
Brait economist Colen Garrow said inflation targeting remains a “sensitive issue” which will probably be debated for some time.
That could unsettle markets, sparking concern the whole framework might be shelved, which was unlikely, he said.
Since he was appointed on Sunday, Gordhan has gone out of his way to reassure markets that the prudent fiscal and monetary policies pursued since 1994 will remain in place.
He also said the government would be careful not to borrow too much, and “get ourselves in trouble”. After two years of historic surpluses, SA’s budget balance slipped back into the red last year with a deficit amounting to 1% of gross domestic product (GDP). That is expected to widen to 3,9% of GDP in fiscal 2009-10.