Author: Siize Punabantu

24th May 2019

The Bank of Zambia Monetary Policy Committee released its policy statement on 22^nd May 2019. The statement was indicative of a steady hand at the wheel.

The two areas of concern raised in the BoZ policy statement are mainly inflation and slow growth, a condition generally referred to as stagflation in economics. How to address these is critical to how the economy will perform in the next quarter.

The need for stimulus

An area of note is stimulus, which is the primary role of the central bank especially in times of slow growth. Zambia is in dire need of a stimulus policy. The problem at hand, of course, is that Zambia is already facing an inflation rate of between 6-8%. A stimulus package would require a loosening of money supply. The quantity theory of money (QTM) places restrictions on interventions that involve increasing money supply as a stimulus. Consequently, the natural response to this would be the requirement for the central bank to contract rather than increase money supply. This can be observed by the increase in the monetary policy rate by 50 basis points to 10.25%.

Stagflation raises a unique problem. An increase of 50 basis points may make sense in that it reduces money supply by slightly increasing the cost of borrowing, which is intended to hold back inflation. The dilemma is that the economy requires stimulus from the central bank, which requires an increase in money supply or lowering of interest rates so business can access loans they can use to engage in higher levels of productivity and output. At this point monetary policy has been exhausted as a means for gaining traction and the central bank has done its best to maintain financial system stability.

Fundamentally, when monetary policy options or interventions are limited the simple way out of stagflation may be to borrow from an external source. Zambia has already pushed external borrowing to the outer limits of 70% of GDP. Therefore, resources have to be raised internally. The option to do this is through Government Securities. The MPC indicates that total outstanding stock of Government securities decreased by 0.2% to K58.2 billion. Though securities raise funds for Government the down side reality is that what they can raise is small and they represent an increase in the debt load.

The commercial bank lending rate rose from 23.6% to 24% and the average lending rate from 21.8% to 22.8%, this increase, is being used to lower demand for loans, consequently help rein in inflation.

An area of note is how to raise the resources to pay back creditors, how to rein in inflation and at the same time provide a stimulus for the economy that will kick start the economic growth required to address Zambia’s economic challenges.

The BoZ is making good headway in ensuring that these are addressed, that there is financial system stability and that the economy will be positioned to pay back its debts.

The Bank of Zambia is amongst the best in Africa and the Zambian economy is being steered in the right direction.

Alternative Suggestions: Other Monetary Policy options that can be considered for future use

Applying Advanced Monetary Policy

To create a stimulus for Zambia action at the structural level would entail managing money supply by adjusting its velocity thereby advancing the cost equation for businesses from:

Profit=Total Revenue (TR) -Total Cost (TC)

To the more advanced Split Velocity (SV-Tech) cost equation:

Profit (Return) = Total Revenue (TR)= Total Cost (TC)

What this change does is it contracts the velocity of money by the equivalent of 100% of GDP. In other words, it has the same effect as reducing money supply. This creates a deficit in money supply equivalent in value to GDP caused by adjusting the velocity of money (This is no different from, if someone owes you K1,000 when you give them back K1,000, you have not increased their income). Similarly, this means that money supply can now be increased or restored by the same deficit which results in no change in the real value of money supply [the stock of money remains the same] which remains in line with QTM and fiduciary rules a central bank is expected to follow by the international banking community. This provides an internally created stimulus value for Zambia equivalent to GDP or K249 billion at constant price (without triggering inflation) by applying a simple monetary policy reconfiguration.

This is not an increase in money supply, but in line with QTM, it is a correction of money supply due to the fact that the value of the stock of money in the economy has been deliberately kept constant  by adjusting its velocity to create a deficit that is then restored as a stimulus or catalyst for growth.

The central bank now has K249 billion at constant price with which to stimulate growth in the Zambian economy. If the central bank restored 50% of this, the economy would be financed by ZMK124.5 billion in the course of the fiscal year with no inflationary trigger or pressure since, technically this does not represent an increase in money supply, the real value of which remains constant, it is in line with QTM rules. Therefore, by simply strategically altering the velocity of money K249 billion or the equivalent of GDP becomes available to the economy at constant price through businesses guaranteeing the next fiscal period will experience double digit growth. The fact that this stimulus is strategically moved through businesses without the risk of intermediaries increases systemic integrity of this approach ensuring that the impact is directly on output and productivity within the economy. Unlike other methods of stimulus this approach ensures that economic growth takes place in tandem with economic development. In other words, not only will there be growth in non-human capital such as infrastructure, there will be simultaneous enhancements in human capital seen through living standards and employment.

Since this is an intervention, the stimulus would lead to a potential doubling of resources in the economy for example instead of K75 billion the revenue collection for the budget would have the potential of doubling to K150 billion, in one year, at constant price by the end of the fiscal year. In addition to this it demonstrates the capacity to shrink the debt load from 70% to 35% of GDP in a very short space of time.

At this point the rate of economic growth in each fiscal period is now guaranteed and can be sustained internally, year on year, at a double-digit growth rate that moves at the pace of the technology paradigm. This guarantee is more formidable than a gold standard. Since the creation of money through fractional reserve banking and other credit creation methods with a debt load depend on economic growth to support amortization, it acts as a loan guarantee for creditors and can be relied upon to significantly reduce the risk local commercial banks face when issuing loans. This guarantee also reassures international creditors who would naturally be in a position to extend more credit to the economy based on its enhanced growth and capacity to repay loans (credit worthiness). The technology paradigm is simply the rate at which the Zambian economy converts finance into output.

This approach uses fundamental facets of monetary policy. In real terms it maintains a tight monetary policy stance whilst triggering rapid growth with development in an economy and being within the rules and controls of what is acceptable to the international community offers alternative options for maintaining financial system stability that can be considered and that are useful in times ahead.

A Split Velocity model is easily deployed and unlike other strategies the waiting time between implementation and gains is minimal as its benefits to the economy are immediate.

In all it shows that Zambia has many options with which to address its challenges and is an economy that has great potential.

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Monday 20th May 2019

It’s only going to get better & better …

……with Split Velocity.

Don’t be overwhelmed. No matter what issues or problems your country is going through, you should not have sleepless nights. There is simply no economic problem, in any country today, that cannot be resolved comprehensively by the power of an economy run on a Split Velocity model.

Why does it get better and better?

It gets better when businesses, be it mining agriculture, manufacturing retail, regardless of how large or small, are able to function in an economy with an efficient circular flow of income (CFI) or operating system. When this happens they begin to operate in the best business environment that can possibly be created because losses caused by inefficiencies in the CFI are corrected. These businesses can now be run profitably with relative ease. Historically economies go through booms and busts, however, when a central bank introduces a Split Velocity system an economic boom becomes the natural position in terms of economic performance which henceforth should have sustained double digit growth. Businesses therefore thrive, productivity and output rise while unemployment is brought to an end.

When banks lend money they generally back this money with the rate of economic growth. In the past they used to back this money against gold until the gold standard was dropped. However, when the rate of economic growth fails to increase at the same pace as loans what inevitably happens is that the debt burden in the economy becomes too heavy to the extent that it cannot be amortized, that is, paid back and consequently an economy slides into recession. We saw this with the sub-prime mortgages in the United States. The risk of issuing or creating money through commercial banks giving out loans is that should slow growth or the rate of economic growth be unable to keep up, the economy naturally slides into recession.

The Solution: The solution is having the rate of growth guaranteed by a central bank applying Split Velocity, which is basically advanced monetary policy applied at the structural level of the economy. A Split Velocity system allows a central bank to back or guarantee economic growth by 100% or more in any given year. This means that whenever commercial banks issue loans the risk of default is now almost negligible; therefore, the risk of recession is almost completely removed from any economy. This is why we say a Split Velocity system is more powerful and more durable than a Gold Standard when it comes to protecting wealth.

When commercial banks issue loans today they do so in an environment in which conventional monetary policy applied by central banks is topical rather than structural and therefore limited in its capacity to ensure financial system stability. For instance, when interest rates on borrowing are high (25%-40%) commercial banks can make a profit but demand for loans will be low. When interest rates are too low and fall to 0% (as we see in the United States and the European Union) commercial banks can lend copious amounts of money because its cheap, but their profits will be low. Furthermore, interest on deposits will tend to be very low due the lack of profitability from issuing loans in both scenarios. Consequently, the public will feel placing their money in banks erodes rather than increases its value and their wealth. They will look for other ways of preserving their wealth other than savings and this will hurt commercial banks.

The Solution: The Solution is to use Split Velocity to allow a low rate of interest on loans (0%) and a high (ROCr) return on loans (100%) without a debt burden. Since loaning money now becomes very profitable and low risk commercial banks can now offer more lucrative interest rates on deposits. For instance with returns being as high as 100% commercial banks could offer depositors interest rates as high as 15% or more whether these are long term or short term deposits. This encourages pensioners and other people or institutions with idle money to keep it with banks as deposits, since their wealth is now protected. Confidence and value are restored to the economy and the general public will be more eager to bank their money.

Income inequality will generally arise from the fact that when loans are issued they will follow a low risk profile – which is of course common sense. They will not follow great business ideas, public need and so on if the risks are high. Therefore, money, assets or status attracts money in the form of credit worthiness. The problem that arises is good business proposals go unfunded, the rich get richer because they are generally more bankable and there is generally not enough value to go around. This position significantly weakens an economy.

The Solution: The Solution is to use Split Velocity to guarantee economic growth and consequently guarantee amortization. Split Velocity does not discriminate, it follows transactions. Whether it is a person selling vegetables in a market or beans in a stall that transaction is backed by Split Velocity. What this does is generate more wealth to go around in the economy without discrimination. What this does in turn is restore the capacity to have loans issued by banks guaranteed by economic growth eventually allowing what was only available to the 1% to now become available to 99%.  This spells the end of income inequality, at least as it is understood in economics today.

At this point an economy begins to function normally and no one is left behind.

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Monday 20th May 2019

Teleological Planning

Teleology can be defined as a structured method of planning that studies every component and process of a plan right down to its fundamentals.  A telescope usually consists of a small eye piece (the origin), a lengthy part (process), important points along the length (hubs or linkages) and the larger front end which allows light to enter (the objective). Essential planning must intrinsically study a plan from the objective (complete form) right down to the origin of its components (smallest parts) pausing to study every hub or linkage in the plan. This is teleogical planning. For example, if a road is being built from Roma to Kabulonga in Lusaka, a simple plan may entail grading and laying a tarred surface between the two locations. However, a teleological plan will entail carefully studying the objective of a complete fully functioning road, every component or hub relevant to it.  Hubs in this planning will be the drainage system, transport system (bus stops), speed humps near schools, filling stations, traffic signs, traffic lights, road maintenance after the project is complete, safety, equipment, work site requirements and so on. Each one of these represents a hub that is linked to the project. Teleological planning may also have to be applied to each hub to ensure that the end result is as close to the best possible result as is humanly possible. Teleological planning will not always account for every need or eventuality however, it will ask enough questions to ensure a higher level of effectiveness for a plan.

Support Planning

Support planning’s role is also to persistently identify how anything being implemented could be done more efficiently and how an employee can be assisted in such a way that any weakness is bridged. This is done without being an evaluation [of your staff that makes them feel ineffectual], but a methodology that smoothens out any kinks in working efficiency of capital and human factors, be they internal to the project or external. Support planning is second only to planning itself. Planning is the objective, implementation is the task to be carried out, support planning the key that gets the targets achieved.

[If you are not using support planning, you’re planning to fail. Support planning should be an institutional practice; your staff should get used to the idea experts are coming in to work with them and feel odd when this arrangement doesn’t occur. Your organisation does not know it all. Regardless of how great you may think it is. An institution should not be too proud or conceited to get help or be shown other ways of getting things done. Support planning states that if there are knowledge, role, behaviour, capacity or experience gaps in your organization’s committees, teams or departments then be brave and assertive enough to bring in temporary expert staff, people with the right exposure, skills and knowledge or consultants, even secondments from other organisations and so on, who can help the teams and departments in your institution to work with greater competency, confidence, expertise, efficacy and efficiency to achieve your goals.]

The Dilemma Encountered in National Planning

Planning has many advantages and a first rule of planning has to be observed and this is:

1^st Rule of Planning:

No amount of scarce or abundant resources will take the place of the planning required to put those resources to good and sustainable use.

Planning is therefore a necessary aspect of any level of economic development. Whether a nation is rich or poor, faced with a surplus or deficit, it still has to plan how to best utilise what it has or the hand it has been dealt.

However, when it comes to planning there are simple paradoxes to understand:

The 2^nd Rule of Planning

The 2^nd Rule of Planning consists of two Planning Paradoxes

1^st Planning Paradox: 

No amount of planning will take the place of the resources or financing required for the implementation of what has been planned.

[Basically, if you don’t have enough resources or financing, your plan will fail. Demand, scale-down, restrategise or find a way to ensure the resources you need will be in place for what you need to get done or it will not succeed.]

2^nd Planning Paradox:

 No amount of implementation will take the place of the resources or financing environment required for what is implemented to become sustainable.

………..

12th May 2019

ters collaboration. Innovation should be embraced and nurtured as it is how institutions across the globe attract the respect and admiration of their peers, because it shows a courageous and pioneering spirit as well as a willingness to seek answers to problems that shift the learning curve.

A Split Velocity model provides a solution to nearly all the current questions that frustrate policy makers around the world in both developed and developing countries when it comes to how to create an economy that is able to cater for everyone, without leaving anyone behind. For instance:

1. How do we make it possible for industries to be able to grow rapidly and yet have a cleaner and greener environment?
2. How do we maintain financial system stability, stop inflation and recover the strength of local currency?
3. Where do we get the resources to accelerate agriculture, manufacturing, mining all at once?
4. How  do we create a commercial tax free economy and yet at the same time increase tax revenue collection with which to finance government?
5. How do we end poverty and unemployment?
6. How do we make borrowing and loans more accessible to households and businesses without the burden of interest rates hindering and undermining the profitability of commercial banks and the issuance of credit?
7. How do we make it possible for everyone to access high quality healthcare and education for free – how could this possibly be paid for?

These goals need resources countries currently do not have. They will not be successfully achieved by taking resources from one hapless group and redistributing them to another. However, they can and will be achieved by generally creating more resources to go around in the economy. How to do this is straight forward. The answer is already available. And it’s simple: Split Velocity.

What is Split Velocity? Split Velocity is simply a deeper reaching and more extensive application of monetary policy that acts at the structural level of the economy. It is a tool that enables a central bank to gain greater control over the general price level, the rate of economic growth, financial system stability and economic outcomes allowing policies that were not possible before to be considered for implementation. Split Velocity acts as a catalyst that enables a central bank to accelerate [increase] the pace of economic activity such that it becomes equal to socio-economic needs thereby wiping out unemployment. It is useful to government as it can be used to generate new resources and be used to find a remedy for economic constraints for which there was no solution in the past.

The effort to develop Split Velocity began in 1992. It took 18 years to develop and test it through simulation. This new approach to economic and financial management was published in 2010. Its been here for 9 years.

We have the empirical evidence to back Split Velocity.

We can explain and justify every step in the theory and process for achieving the outcomes we offer.

Anyone who tells you that we can’t do this is simply uninformed, bring them to us and we’ll prove it publicly and officially.

We won’t let all the benefits out of the bag just yet, but there are many new and amazing advantages that were not available in the economy in the past that will become possible.

We are at the cutting edge and have the knowledge in economics, finance and business no other individual or institution anywhere in the world has today:

To get the job done.

And get it done right.

We are here for you.

We look forward to bringing your way, all the advantages of Split Velocity.

We’re in this together….

23 April 2019

Excerpt from the preface section of the GPWN

“It is without a doubt that in the global perspective Africa is a continent amongst many that has faced the greatest challenges. However, these challenges should, when contrasted against the achievements of prosperous developed countries, not encourage people to believe that these nations are that much better off. In these wealthy nations there are many people who suffer, who endure great hardship, do not have a roof over their heads and who do not know where their next meal will come from. If one takes the time to look away from the sky scrapers, the highways and glamorous lifestyle of the few, beneath it all there are many whose struggle to survive in the developed world, whose ordeal, would rival any similar tale from another continent. The goal therefore is much more complex than the simple desire of developing countries to become as “prosperous” and “developed” as their peers. The analysis must delve much deeper than this simplistic objective.”

GPWN

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