Money from Nothing*
 
“The road to inflation is paved with good intentions.”
 
-William Guttmann
 
This quote was in my face when I opened my mail this morning and it seemed apposite to my thoughts when I purposefully made a rare pilgrimage through a less travelled over [for me] part of the city to my old University to hear a talk and the responses to some questions put to the author of a recently launched/ published document/book on the mechanics of the Mzansian private Kredit industry. This refers to the southern part the Azanian Konfederacy in which I live.
The relevant document: ‘Money from Nothing’ by one esteemed Professor D. James at an important London based University in the frozen offshore region called New Pomerania.

 
Selling tomorrow today
 
 

The presumed role of
The illusion called
Future
Is that it is
Real
And we sell it
As if it were
Not.
 

Selling tomorrow
Today because
Tomorrow
Never
Actually
Arrives.
 

So take two
Futures
Now and when there’s
Less
Later
Shift over
Drives
 

And when is this
Later?
 

It doesn’t
Matter: we can choose
To imagine it
Again
Should we sell it
Once
For we simply sell
It
Again and
Again
And
It never has to pay
Rent
Since there was never
Consent
 

Future sold is
Future
Bold
The extravagant idea
That there will
Be a tomorrow
Later.
 

And what then is this
Later
 

Take two now
Hurrah!
Get less
Only
Later.
Will it be less?
Won’t it be more?
 

And then
What tomorrow?
Where
Is this time
Beyond
Care
This is unclear:
Unclear?
And how should we
Presume
It
To be
Linear?
 
!NIK[‘15]
 
—— 00000 ——
 
That was the short version of my experience at an invigorating recent book launch [15 April 2015]. The rest refers to its inspiration and may be heavy going for those with a delicate attention span. Better to stop now and press a button somewhere so I can get paid.

 

Oh still here? Alright… even my ancient mother gave up here.

 

So for those, who prefer prose, this is the short attention span summary of the point of this blog in case you find my long discourse later boring or too confusing: which is much the same thing.
 

It seems the level of Private Kredit in Mzansi is huge... although no figures were obtainable from the text of the Kredit related book launched at the packed Wits University Press event in their austere facilties on the 16th April, because, as the Author observes on page 147: “the book’s primary aim: to view questions of debt in their broader social context.”
 
Presently Public debt [in Mzansi] is R1.8 Trillion against GDP of R3.3T. This sounds reasonably good [compared to Greece for instance] until you realise that 23% of GDP represents State expenditures of one or other class.This is suggestive of a high level of so-called hypothecated tax payments. [ I,O,W:This means that so-clled “real” GDP is closer to R2.5 Trillion of real value creating activity… from which should be also subtracted the expenditure on Private security that is more properly a transfer payment contributing to the hypothecation base.] [figures extrapolated from latest Budget.] I.E.: The ‘real’ debt is more like 70% of ‘real’ GDP and is growing fast; and we [the country] are at the absolute bottom of an historically unprecedented, fairly flatlined, gasping towards respiration: global interest rate cycle.
 

Our society is presently in shock over a wave of violent unrest that has affected important parts of the country, suggestive of a high level of stress and anxiety over “competition for scarce resources”, and inexorably rising costs. [A recent Deutsche Bank survey showed my home town, Jozi to have moved from being the third cheapest city in the world in 2001 … into far more upper divisions in 2015, an impression confirmed by various visitors over the past couple of years].On the other hand, unemployment is at levels that make Spain look like it’s roaring ahead as robots replace humans in key categories, changing the world and us. Leaving us with street-loads of unemployed; perhaps even unemployable, persons fueling up on rage….
 

Into the mix is a rapidly evolving digitally based global economy which, through a combination of disintermediation and disinflation means that our relative rate of economic inflation is faster than that of all our main trading partners.
 
To highlight this process a pattern of negative interest rate yields on public debt has been a key shift feature of the past year in the Euro zone culminating in a first a fortnight back when the Swiss ‘sold’ TEN YEAR PUBLIC DEBT on the basis of a small fee payable: a negative interest rate. In other words they charged people to look after their money. And were oversubscribed.
 

So the real question is, given the high level of private/public debt and the minimalist rate of growth. What happens in the “socio” world of your [the author’s] study when interest rates start to rise sharply across the planet for those places considered ‘risky’ as they will do over the next twelve to eighteen months?
 
——–0000000——-

 

Okay. The rest is me ruminating over how i eventually got to the point of the question; and it is really written for those few people who like a great deal of detail with their snippets of insight.

 

“Money for nothing and your kicks for free”
Dire straits.
 
I have a post-retirement paying hobby, mediating on the knowledge acquisition process, as applied to 9th grade economics, in an old eastern quadrant of the city, Jozi, where I live. Once this was called “teaching” but when the minion, in front of one, has instant access to a billion pieces of information, off a machine in its hand: then mediating is about where it’s at.
 

My learning minions come from a variety of places on the Afro-Azanian Kontinent, ranging from the next street to north of the Sahara; and the role of Kredit in their lives is as paramount to their survival, as it has been to mine. Knowing how it works though is integral to their learning objectives.
 

So when I received an invite from my old university to the launch of an in-depth evaluation of socio factors driving the Kredit business, I am ‘required’ to know about it, and accepted.
 

Of course I am also something of a retired ‘Mashonisa’ [debt collector*6] and one of the fun moments in the evening’s presentation was the assertion by a speaker, that the day of such persons who ‘collect outstanding debts’, sometimes in a manner ‘brusque’, being needed, had been supplanted by new banking forms that made them redundant. Yeah.
 

It was at that point that I realised I was in ‘odd’ company for people professing concern for the “Money” business. But I get ahead of myself.
 

As I drove west across the inner city from my workplace; to the venue on Wits’ East campus, I was pondering a money relevant event. I had been puzzling over it randomly since the previous week. I was wondering too whether to test it and how to integrate the implications of a shock event into the evening’s information. I was also distracted because I was unextectedly and unusually detoured from the planned route and required to skirt neighbouring, more inner city zones, [compared to my workplace], because of imperative and immediate security concerns over erupting civil unrest activity, that had become violent.
 

So at the same time, the idea that was rumbling in the background of my thought while I drove, was only rumbling: because immediate survival required driving that now deviated route in tandem with multiplicities of ubiquitous rules-deaf taxi men daring tarmac, between random old ‘toppies’ [me] and tone-deaf ReaVia busses. ‘Dancing without glancing’ was the real priority thought… Then there was the information, prompted by a news station report on the car radio, regarding a shooting incident in a zone I had just vacated. “People were being shot, on the streets, in my part of town… So if you’re in that part of town…Stay focused.” So my thought got crowded and remained unformed.
 

In the event I never got to air my thought, in question time partly because the guest speaker opened by stating that she was no economist; and dealt only with debt in the more personally abstract anthropological sense: and wouldn’t therefore be of any use with economic oriented questions.
 

So I would have tossed an unformed thought before it could become a useful question and anyway needed more space to ponder it, given a veritable coruscating flood of new information pouring out of the evening. The back up speakers, one of whom was described as an informed Accountant; and even the questioners, seemed to be people from a money unrelated world. They all seemed oddly out of sync with the subject matter and more in keeping with the philosophy motivating a second book on display, that I whimsically additionally chose to purchase. [it was also on discount] I was attracted by what the late Mr. Bakunin allegedly once described as a “prime Oxymoronic description” on a corner of the dustcover, i.e.: “Democratic Marxism”.
 

And then I was scheduled later that evening to be in conference with a person from a thriving business in the [so-called] “New Economy” [she told me she worked for ‘one of the world’s biggest data holding companies that you’ve never heard of’: a name I instantly forgot.] in which the purpose was to drive precisely driven advertising to a specifically, almost personally defined, target. Was this Marketing nirvana? I needed to rush, long before the presentation ended, wondering whether that nirvana would also target those with means to pay as well… while wondering about what i had heard.
 

The real surprise to me in the presentation was to discover the sheer magnitude of the Kredit Industry in Mzansi, and the extent to which the local model has permeated the entire Kontinent. That we have some of the world’s highest ‘cost of credit’ was noted, as well as the idea that we are the only place on the planet that protects debtors to the extent that we do: and that this was an inherently fudged [or perhaps fudge-able] process. I was curious too about the ABIL collapse [2014****] touched on by one speaker, that I saw at the time as a “Dark Swan*” event …
 

As it happened the event [ABIL’s collapse] coincided with that part of the economics course that deals with product life cycles [PLC] and provided minions with a perfect narrative for the learning of the term… “Slippery Slope**”… the ‘dark swan’ trigger event being an earthquake in the Orkney region of the North West Zone of the Mzansian edge of the Konfederacy. It was later obvious to those with perfect hindsight, that ABIL itself was riding a fairly extreme Leptokurtic curve. And the sub question to the end question posed by the time you finish this is: Where is the rest of the Mzansian Kredit market on a Konstructible bell curve: is it reasonably Mesokurtic or like ABIL are we riding something more Leptokurtic.
 

A questioner raised Korinth Starr’s “Basic Pay” idea in its antiquated form*4 “Basic Income Grant” and the thought/questioner, was summarily, but nonetheless curiously, dismissed by the accountant. Curious because it should be obvious by now that the present ‘new economy’ business model, cyber based as it has become, is a model for a bizarrely destruKtive code of work eradication; as robots replace people. [ I will refer again later to this Robots replace workers idea under the intro: ‘Konsider’].
 

We are in a world of radically declining “JOBS” [as Korinth suggested 20 years back now]. Reality suggests: ‘Telkom created jobs Twitter decimates them’ … albeit in tru-post Luddite forms the new economy seeks critical thinking, sharp witted, multi-talented minions. For the rest who cannot measure up to that. The inevitable outcome of that form of Marxian economics that broadly despises enterprise, especially small enterprise, is that Basic Pay is as inevitable, as the growing understanding that the present Internet model took a false turn and [yet another] intervention shall become imperative to calm the storm we experience around us not only in Mzansi but simmering all over the planet: fuelled by free goodies.
 

The reality of the fact that almost a quarter of GDP in Mzansi is simply hypothecated tax revenues was politely not mentioned since it was an ”economic” question. Perhaps Marxian economics doesn’t run to rationalizing sinecures. It is hovering territory however for dark swans. And there seems to be looming labour unrest in that region as well… debt fuelled in the new incalculable age of relative devaluation.
 

Another surprise. That the urge to spend is so prevalent and ingrained and inherently compulsive that even the venerable [so-called] ‘Stokvels’ [savings mobilization] institution has been morphing, in the way of its signature ancestry, the now demised “Building Society Movement”, into becoming financially institutionalized as a ‘spend-now’ agency.
 

And that the upshot of this is that ordinary People [now] have little choice but to SAVE in Banks: but that Banks LEND only to Corporates, and even then, only with the usual circumspection.
 

In other words the only real source of ‘Kredit’ for the kommon citizen [the new “kommoner”] was this ubiquitous new/old mass Micro lending market evaluated in the launch tome: ‘Money from Nothing’ and ranging from the routine, time served, furniture outlet, to the newly affluent otherwise unemployable private lending institution represented by ordinary persons: recently and lucratively ‘dispossessed’, in the process of realigning the economy to satisfy the new demographics of freedom…
 

And then in amongst these extended arms are, of course the ‘more new’ [despised apparently] competitors… the Kredit extending ‘Korner Shop’ … the apparent targets of a suicidal wave of violent and antipathetic destruction bordering on genocidal rage, that has so traumatized our city that Saturday night [18 April] was the slowest I have witnessed in years… It felt [for instance] like midnight Sunday almost all over Melrose Arch; and an early Saturday evening drive from OR Tambo airport to the Melrose place in pursuit of a cheerful hostelry for a snack was like driving through a cemetery, not a taxi to be dodged, the traffic was so thin. Weird. Was this part of a proving ground for that swan?
 

Which meant the questions if not the answers, provided an insight into the ineffable Mr. Smith’s “Invisible Gland” [sic]. That synergistic confluence of self-interests when a class of disaffected Cash only/money for nothing [much] Competitors share commonality with those customers who buy from a growing class of credit extending ‘korner shop’ competitors at the bottom end of the market, All of whom learn abruptly that the most effective way for the deeply embedded debtor, to get out of debt is to liquidate [en-masse and literally] the creditors; as our country has exploded into an orgy of otherwise incoherent allegedly [swiftly airbrushed] Afrophobic rage… an example of which was represented by the street shootings referred to earlier while driving to the launch, when a refugee class of pedestrians, allegedly from a failed zone to the north of the Konfederacy, were apparently attacked and shot at by mobile gunmen.
 

Therefore I wondered at the scale of the private debt being described, connecting with another looming confluence, presented by my earlier background pondering thought, subsequently shelved due to its internal incoherence [to me]; and wondered at the pattern, whereby the price of an infinity of futures is/has been, routinely mortgaged. And then, how there are some unanticipated changes recently as [for instance] the mounting range of the new ‘App’ revolution encroaches on structure, threatening everyone from the General Practitioner on the corner to chefs, drivers and security guards. And whether the entire ‘Money from Nothing” konstruct is bordering on implosion under the strain of what is, by historical standards, infinitely hypotheKated credibility.
 

And the deeper question?
 

Who shall then pay the piper?
 

So: What is this problem to which I have now referred a few times?
 

In this past fortnight the Swiss have launched and apparently sold out a modestly valued ten-year bond. In itself this is not unusual. The Bulawayo City council in a financially problematic part of the Konfederacy, in the region called Monomutapa, is presently advertising bonds to finance its water development schemes. It is a long-standing and normal method of public or corporate financing. I do not know the price of Bulawayo’s offer. Greece is presently operating on an effective current yield around thirteen percent per annum [20April 2015], so it would presumably be positioned somewhere in that range.
 

What is different about the Swiss sale was the price. As the following quote from the [London] Financial Times: FT>Markets demonstrates. [The bold type is mine, as is the grammar correction “past”]
 

“Bonds with negative yields have become one of the world’s fastest growing asset classes, accounting for around a quarter of Europe’s government debt market. In the last [past? Unless they believe this to be the LAST year ever, which of course it could be.] year Germany, Austria, Finland and Spain have all sold shorter-term debt at sub-zero yields.
 

But this is the first time that investors were effectively charged for lending money to a government for such a prolonged period. They bought SFr232.51m (€222.4m) of Swiss debt that will not be repaid until 2025 at a yield of -0.055 per cent — and the issue was comfortably oversubscribed.”
 

http://www.ft.com/intl/cms/s/0/35ddc68e-dde7-11e4-8d14-00144feab7de.html#axzz3XhAtxenE
 

This fact was presented by Susan Li, the lady that hosts the morning “Asia Edge” show out of Hong Kong off Bloomberg last week, using a variation of what ‘rich dad poor dad’s’ creator, punts sometimes, as the marshmallow theory of investment educating.
 

She offered a range of front line, investment analyst class, guests, the standard choice: have a marshmallow now; or if you wish to wait a while you can have two. [Handing marx=shmallows [typo seemed apposite: sic] around seemingly to demonstrate that she wasn’t tricking them]. Keeping it hypothetical. She smiles with such crafty elegance.
 

What the Swiss are saying, she continued, was “Here’s two marshmallows now, but if you are prepared to wait you can have one”. She held up the last marshmallow.
 

Ok. Explain this paradox. She said.
 
The “Asia Edge” guests were unable to offer an explanation. And nor could I. I was as dumbfounded as they were.
 

So, what are the implications of a rising tide of negative interest rates for the future of the Mzansian ‘Money from Nothing’ macro-environment? Is this a trend of minimal duration… or is it here for the duration?
 
So that, in a considerably less formed manner, was the question I thought to throw into the ring.

 
German bond yields are down to around zero, and for many years now companies have borrowed money in the Japanese markets at close to zero and loaned it here in the Mzansian markets at above 5%*** as part of the well worn, so-called: “carry trade”. Specifically a business linked to a former [US] Presidential contender borrowed thus and loaned R25B, in particular, to one, then Listed entity, that subsequently bought out its shareholders with the loan that was [naturally] taken up by the lender, and that, the then privatized entity, is still so brutally encumbered both by its leaden repayment schedule; and the economy’s stagnant growth prospects, that it routinely sells off parts of its asset base, presumably to remain solvent. The point of borrowing is to cover the cost with income growth.
 

This means the the 9th grade minions will also have to note the fact, routinely misunderstood by so many of their elders, that Ten percent [10%] is 100 percent higher than the 5%. 500-year average ‘risk value of money’.
 

Over the past few months though the Swiss and other mainly northern Euro zone countries have started charging people to hold their money instead of paying interest. This means that the gap between the risk content of the Swiss holding your money is at least 1000 odd times lower than 10%, and based on what was said at the Presentation, personal debt costs, is at a risk boggling 2-3000 percent, over the [now] ‘best’ world price.
 

And what if inflation over the next decade only affects those places that are over borrowed?
 
So what it seems may be happening, I thought, subsequently, in one of those serendipitous ‘mind applied’ moments that leave you thinking: okay that was obvious, how come it took a week to figure it?
 
The Swiss decision suggests that, given the [US] Dollar based world has had some four trillion dollars artificially fudged into it on a scale that makes Mr. Mugabe seem parsimonious; that thereby they [the US] through an activity euphemistically called Quantitative Easing [QE], – are laying the ground for the most massive devaluation of money in since forever… [For the less informed, devaluation of currencies is Orwellianly described as Inflation so that it sounds less ominous.].
 
Now the Euro zone is going to do the same [Quantitative Easing] in an attempt to kick-start the Euro economy that has been rendered impotent through a century of well-intentioned Marxian economic interventions to protect the weak, infirm, and judiciously under-employables as the world replaces low level workers, and even high, with robots: computerised solutions to vexing problems. So they [the Swiss] are effectively saying you are giving me money you got for free and I’ll charge what it will lose in value over the next period of time. You can’t pay ‘value’ [in the form of interest] for free money.
 
This is a significant move that holds ominous overtones.
 

And what is interesting then, is why the ‘discount’ [0.055%] would be expected to be so low since the dumping of fiat money on a much smaller scale in the past led to pandemic devaluation…
 
So the more complex question facing our publishers: Are the Swiss evaluating the long term [i.e: ten year] implications of a world in which [selective] abundance has devalued almost all human interactive activity to the point where everything [almost] is for free.
 
Konsider this. [I did mention this was coming earlier didn’t I?] There is a man who can proudly say he has a billion slaves working for him; kollectively working hundreds of millions of hours weekly: and he has become fabulously wealthy.They even pay rent and happily expend capital to give him [and alternatively many of his associates] their labour with enthusiastic vigor. And then the slaves want to rebel and riot because they get no pay from their ‘real’ jobs and those jobs slowly went away.
 

Is that an odd way to describe the phenomenon called Facebook and its associated tech freedoms that have obliterated the value chain of global society? Nonetheless this counter intuitive ‘labour for free’ model is part of the reason for a global shift in value. Couple this phenomenon to the cheap labour role of the emerging South and Southeast Asians damping down the inherently Inflationary effects of QE; and viola we have a new economic model apparently overlooked by the local new Mzansian ‘spend like there is no tomorrow’ at extortionate returns model that is soaking up cheap imports from those regions
 

So what if the inflationary effects of the ‘announced’, bartered, hypothecated QE trillions; [or is it now quad zillions when taking derivatives into consideration] can be put off for the next ten years at least [they are ten year bonds remember] Would the more likely trend be a continuation of the presently disinflationary ‘teens in the [so-called] “Developed world”. And the question that really begs answering by the gathered information Kollektors is…
 

Could this then mean that those places where debt is charged normally at levels once considerate extortionate, as the second speaker said of Mzansi: face an inevitable explosion – a financial apocalypse- when inflationary costs persistently overrun income, and money is no longer free.
 
And what ‘Dark” Swan event could trigger that?
 
And for me…
 
What then will my 9th grade minions learn?
 
Keep your data in a secure Cloud?
 
!NiK[15]

* 1 ‘Dark Swan’ event; a term used to describe an unanticipated, catastrophic intervention/disruption to an existing, albeit peculiarly strained, established order. Usually [thoughtlessly] designated with a colour code specific, that has been altered for purposes of mediating a thorny part of the transformation agenda.
 

**2 ”Slippery Slope” Modified reinterpretation of an old Marketing Tool by Mssrs Stephan, Power et al: ‘The Scramble for Afrika in the 21st Century: A view from the South’. Renaissance Press, 2006. P37.
 

***3 5% roughly the developed world’s five hundred year moving average percentage for relatively risky trades. Moving higher as the risk becomes less predictable and retrieving the loan becomes more tricky and costly, perhaps even needing to be ‘written off’. Yields, naturally vary considerably more than that.
 

****4 ABIL Afrikan Bank Ltd.A giant, listed “money lending’ bank. Share price plunged from 4400 at 08.30 to 0027 by 16.40 Bank was subsequently ‘rescued’ by the national reserve bank.

*5 Basic Income Grant… You’ll remember Starr famously stated “Grant me no favours Basic Pay is mine by right…” Jonker Memorandum by Nicholas Jakari.

*6 See: ‘7 Ways to get your money’ by Nicholas Jakari.