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Authorised Financial Services Provider – FSP No: 859. The South African Economy – Are We Making Progress?. Presented by: Dawie Roodt 29 September 2008. 2008: Subprime & Inflation. International Economic Growth. Source: International Monetary Fund, 2008. Subprime, Say Wha’ ??.
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The South African Economy – Are We Making Progress? Presented by: Dawie Roodt 29 September 2008
International Economic Growth Source: International Monetary Fund, 2008
Subprime, Say Wha’ ?? Subprime definition: A loan that is offered at a rate above prime (0.1% - 0.6% higher) to individuals who do not qualify for prime rate loans. A.k.a “NINJA” loans Low interest rate environment Large-scale lending and borrowing
Fed Funds Rate – A matter of Interest Nasdaq Bubble Credit Crises Inflation Subprime Lending Source: I-Net, Efficient Research, 2008
It’s All In The Packaging Subprime Loan RISK Sell Sell Sell Sell CAPITAL Resell Resell Sell
Excellence in Banking Sector? Global Credit Crisis Bear Sterns, Lehman Brothers, Merril Lynchbankrupt or taken over AIG, Fannie Mae, Freddie Macbailed out SA Banks Locally: No Direct Exposure International: Limited Exposure Thorough Assessment by Registrar of Banks in July 08 : “financial system is sound”
International Monetary Policy Source: Efficient Research, Aug 2008
Super Cheap Money! Source: Efficient Research, Aug 2008
Institutional Approach to Answer Independent Judiciary Private Property Rights Freedom of Press Independence Central Bank Democratic Process
Destruction of Institutions Democracy:New Leader Appointed Ecstatic! Change Economic Policy: More ‘democratic’ Take from the “Haves” (non-supporters) Give to the “Have-Nots”(supporters) IGNORES Private Property Rights Negative ImpactonInvestmentSavingsConfidence UNDERMINES Economy
Destruction of Institutions Democracy:New Leader Appointed Ecstatic! Change Economic Policy: More ‘democratic’Take from the “Haves” (non-supporters) Give to the “Have-Nots”(supporters) Inflation: 200,000,000% ?? IGNORES Private Property Rights Negative ImpactonInvestmentSavingsConfidence UNDERMINES Economy CapitalDwindles…. Start to Print Money DESTROYS Independence Central Bank Media & Press: Report on Disapproval and Objections by Public Court & Legal System:Public tries to find Justice through legal system DESTROYS Independent Judiciary BANS Freedom of Press
Destruction of Institutions Democracy:New Leader Appointed Ecstatic! Change Economic Policy: More ‘democratic’Take from the “Haves” (non-supporters) Give to the “Have-Nots”(supporters) DESTROYS Democratic Process Democracy: Mugabe-Style1 Man, 1 Vote, 1 Candidate! IGNORES Private Property Rights Voting System:Public tries to vote dictator out Negative ImpactonInvestmentSavingsConfidence UNDERMINES Economy CapitalDwindles…. Start to Print Money DESTROYS Independence Central Bank Media & Press: Report on Disapproval and Objections by Public Court & Legal System:Public tries to find Justice through legal system DESTROYS Independent Judiciary BANS Freedom of Press
Destruction of Institutions Democracy:New Leader Appointed Ecstatic! Change Economic Policy: More ‘democratic’Take from the “Haves” (non-supporters) Give to the “Have-Nots”(supporters) DESTROYS Democratic Process IGNORES Private Property Rights Voting System:Public tries to vote dictator out Negative ImpactonInvestmentSavingsConfidence UNDERMINES Economy CapitalDwindles…. Start to Print Money DESTROYS Independence Central Bank Media & Press: Report on Disapproval and Objections by Public Court & Legal System:Public tries to find Justice through legal system DESTROYS Independent Judiciary BANS Freedom of Press
Destruction of Institutions in SA? Private Property Rights 2008: Land Expropriation Bill
Destruction of Institutions in SA? Freedom of Press “Mbeki received R30m”
Independent Judiciary Destruction of Institutions in SA? Zuma’s Mauritius Papers
Independence Central Bank Destruction of Institutions in SA? SARB Hikes 10Times! interest rate
Destruction of Institutions in SA? Democratic Process POLOKWANE
South African Economy: Breakdown Source: StatsSA, Q108
Household debt to disposable income Q208:76.7% 59.4% 56.9% 50.2% 44.5% Source: SARB and own calculations
Savings to disposable income of households 9.2% 5.4% 2.6% 0.5% Q208:-0.5% Source: SARB and own calculations
Inflation: Old Basket CPI Average: 2008 8.5% Source: StatsSA and own calculations
Inflation: New Basket(?) CPI Average: 2008 9.4% Source: StatsSA and own calculations
Fixed Capital Investment Source: SARB, 2008
Eskom: R343bn (5 yrs) Transnet: R78bn (3 yrs) 80 New Capital Projects – R336.1bn (2008 to June)50% higher than 2007’s total R224bn Government’s Infrastructure Spend Source: Budget Review 2008/09; Nedbank, 2008
Background Deficit Gold Surplus
Theory versus Practice expansionary FISCAL SURPLUS
Spending Priorities Social Spending
Social Grants Beneficiary Numbers Source: 2008 Budget 2007: 11,9m recipients 26.0% of SA population
Authourised Financial Services Provider – FSP No: 859 www.efgroup.co.za