It’s the morning after and truth stares at us
WHEN the actions of politicians drive valuations, as is the case in South Africa, you are bound to be unhappy with the price. Executives talk up bubbles, while politicians fuel uncertainty, and with that, falling confidence.
How we all must be wishing for days past when markets were awash with liquidity.
As much as I’ve called for monetary policy normalisation after the experimentation in the years following the 2008 financial crisis, I selfishly want a return to the heady days of stimulus injections from the US Federal Reserve.
Up until its final injection, or rather until the moment it signalled an end to the monthly injections, we were shielded from the actual fundamentals of the economy. Now we are exposed to the elements, the structural faultlines in the economy are discussion points in analyst presentations.
Structural reforms and fiscal prudence are concepts only answerable by policymakers. Hence the gnashing of teeth every time the Presidency releases yet another late-night statement, for fear of yet another cabinet reshuffle.
By all accounts, another one lies ahead, which would make it the sixth in as many years.
Previous games of musical chairs occurred under the cover of a doped-up market; future ones won’t.
Stimulus kept markets rallying to new highs and interest rates at record lows, and dangers largely remained but distant threats.
We are now living in the morning after and the truth is that we’ve been living under an administration that has failed to manage the economy in a downturn.
It’s placed its faith in Brics, latching onto a term coined by Jim O’Neill, formerly of Goldman Sachs, some 15 years ago. I can understand the allure of being centre stage during a supposed shift in capital markets from New York and London to the emerging world. It has proved a tantalising stage for Brazilian, Russian and South African leaders in recent years.
But if they’d done their homework, it would’ve been evident that a change in US monetary policy would quickly pull the rug from under their feet. Pulling back stimulus was always going to trigger a correction in commodity prices, and in the case of Russia, painfully in the price of oil.
In the management of the energy crisis, there’s still no answer to the base-load question. As much as renewable energy has been a success, it isn’t the permanent minimum load that a power supply system has to deliver.
All we have is a haphazard nuclear plan that for all its perceived merits is shrouded in political smoke and mirrors. If there’s to be an undisputed base-load solution in the final years of President Jacob Zuma’s term, it’s probably a coal solution.
Growing unemployment may
A change in US monetary policy would quickly pull rug from under their feet
have conveniently weakened unions, a thorn in the side of government and business, in particular the miners. In reality, the social welfare bill is only likely to increase in years to come, reining in the state’s ability to invest in infrastructure to clear the clogged arteries of the economy.
Against this backdrop, policymakers need to focus on the needs of the country rather than personal ambitions. There’s no place for any more fidgeting; can we have some depth to the conversation?
To this end, I’ll close with a sour quote by Mark Twain on US politics, which resembles ours at the moment. “The political and commercial morals of the US are not merely food for laughter, they are an entire banquet.”