Economic Holy Trinity

Economic success is an outcome of team-play. It is common knowledge: a house divided against itself cannot stand. The triad of economic success is comprised of government, banks and firms. Like The HolyTrinity, these three have to follow one principle.

Economic growth is a dynamic process. Growth depends on: the willingness of firms to invest, banks credit creation capacities and government efficiency ensuring macro-economic stability. The Central Bank is the government supervised bank that ensures private banks treat customers fairly and work honestly. Backed by government, all the time, the Central Bank holds reserves and bills as assets.

When government fails completely, macro-economic instability becomes rampant. This lowers investor confidence and firms stop investing. When firms stop investing, long term cash flow is compromised and banks become less willing to lend worsening a crisis.

To counter such an occurrence, government needs to engage economic actors as partners and develop policy that benefits the trinity. The goal is win-win-win. Firms want profit, government needs tax revenue from these profits and banks see asset growth as firms stay profitable.When all is going well the Central Bank also gets higher reserves from banks and bills are honoured.

No part of the trinity is more important than the other. If one part of the triune collapses, the other two can provide support. If all parts collapse, they need to sit down and work out how to get into business. All this requires compromise and remembering the principle of economic unity:an economy works well, when all actors contribute to growth and development.

Zimbabwe Money

Reserve Bank  Of Zimbabwe

Money has a significant role in economic growth. 
Zimbabwe's recession is worsened by an absence of local money and credit. Instead of developing practical solutions to resolve the money crisis, politicians and analysts are locked in an existential power struggle.

Credit is economic money. Failing to understand this, The Reserve Bank of Zimbabwe(RBZ) printed fuelling hyperinflation. Without factories to stimulate employment and money flow, money flowed direct into pockets driving up prices.

Money prospers, when it is given as credit to firms for productive activities. RBZ hyper-inflationary printing crowded out productive investment and encouraged speculation.

Currently RBZ cannot create base money. Also, banks cannot lend given high loan delinquency levels and dismal economic performances. Lacking credit,  Zimbabwe's economy lacks the stimulus it needs to recover.

RBZ needs an operational framework to rebuild a balance sheet. This is  not permission to print base money, the bank's ineptitude would bring back super inflation. A well funded balance sheet is  needed to support banks that feed  the Zimbabwe's economy.

RBZ owes banks foreign currency and this weakens the liquidity of owed banks- meaning less funds for credit. These two predicaments indicate RBZ cannot achieve outcomes in this environment of repeating political failures. Politicians and analysts identify they is a problem, they do need to work together and resolve the crisis.

　

Zim Banks 101

We are all at risk. Academic economics literally ignores the real-world role of banks, money and credit. We have all heard the abstract mumbo-jumbo about a money multiplier, demand for money and other assumption based fictions, only useful for passing economic exams. 
Events like the  Great Crash of 2008 and Zimbabwe's 20 year recession demonstrate you cannot trust academic economics when it comes to money and banking.

Private banks hold the key to growth in business activity. As private banks stopped lending in 2008, the world economy stalled; in the 1990s, when Zim banks slowed lending, industrial sectors startered declining.

Banks hold two major assets: reserves at the Central Bank and loans. When the Central Bank cannot honour its 'lender of the last resort' position, high loan delinquency means private banks become operationally insolvent.

It is no surprise Zim Banks are always in trouble. Outright fraud, deliberate fund misuse  and poor lending practices have left smaller banks bankrupt. With the lender of the last resort failing to honour deposites made by larger banks,small and large banks lack the funding to support economic transformation.

Local Prosperity

According to John Maynard Keynes: economics is a moral science. Adam Smith,' the father of modern capitalism', clearly identifies: the economy cannot function without justice, fairness and morality. Corruption in Zimbabwe is fuelled by a triad of injustice, unfairness and immorality. With high immorality the economy is not realising prosperity.

Contracts from the basis of economic activity. Fraud, graft and corruption are causing the majority of Zimbabwe's business contracts to fail. Businesses continue to fail and the economy sees more economic decline, as corruption grows unchecked. It is clear to see, for the economy to function contracts have to be fulfilled. With the majority of Zimbabwe's contracts not being settled, Zimbabwe for the past twenty years is sitting in permanent depression.

Until courts are allowed to deal fairly and justly with fraud, graft and corruption Zimbabwe will continue in decline. A just law and fair implementation by a conscientious court system will stop the spread of corruption and reduce dishonesty in 'business'. Immorality is not cured by itself; the law can stop its spread and check its destructive impact.

Jobs for Zimbabweans

90% of Zimbabwe’s working population is jobless. Household subsistence and the informal sector do offer this majority limited opportunity. Among young adults, the majority have no opportunity at all.  The 10% formally employed are underpaid in low quality jobs.

Youth unemployment was an issue, even before political independence was gained in 1980.Rapid population growth, since 1980, has never been matched by job creation in Zimbabwe. High unemployment has fuelled emigration and poverty, guaranteeing crime, prostitution plus delinquency all round. Lack of opportunity has led to wasted youth and moral decline.

Facilitating conditions that ensure real productive job growth is the remit of the state. Only inclusive policy will give Zimbabwe increasing formal employment and the needed rising demand for labour.

Without a currency and bruised by double deficits the country needs to recover its monetary-fiscal positions. Thus, a Zimbabwe properly managed from the top will bring about more social stability. To avoid this persistent waste of talent, government has to amicably work with firms providing quality jobs.

Zimbabwe’s government is not powerless. Zimbabwe government can curb in-house corruption, clean up its failed institutions and remove bureaucracy. Zim gov needs to start walking the walk, all talk no action does not deliver results.

New Year Old Problems

2014 is already witnessing an increase in national challenges.  Zimbabwe’s shaky banking system and the absence of a national currency are the least of the people’s struggles.

40 years ago, Zimbabwean shops stocked over 80% made in Zimbabwe goods. Today, the trend is reversed with less than 20% made in Zimbabwe sold and stocked. Without exports to match this influx of foreign goodies, poverty and deficits will continue their upward march.

Zimbabwe’s leaders agree things cannot go on like this. However, policy from central government is not addressing the main causes of Zimbabwe’s economic demise. The current budget, Zim Asset and all the paraphernalia of a state propaganda machine are actually multiplying the national crisis. They will be no economic progress in 2014; and the hope remains that by 2020 a more honest government will start delivering credible policy.