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Friday, 30 May 2008

"where is TITO? In the "real economy" or in the "monetary economy"?"


Nicolaas Smith on 2008/05/29 10:19:37 PM - Re: Benzo

Finweek


"where is TITO? In the "real economy" or in the "monetary economy"?"

Tito is in the monetary economy. 11.1% inflation (Tito?) is destroying R194 billion in the real value of all monetary items (M3 = R1751.361 billion) in SA. At 3% inflation Tito would only destroy R52 billion of the real value of all money in SA. His job is thus worth R142 billion at the moment. If he can bring inflation down to 3% he will not destroy - or maintain R142 billion in the real value of all money and monetary items in SA. It would be wonderful if he can bring inflation down to 3% and maintain R142 billion in the SA economy. We can pay him a big bonus for that - when he achieves that.

"Where am I? in the "real economy" or in the "monetary economy"?"

You are in both.

Where you own money or montary items your are in the monetary economy and Tito destroys the real value of your money at 11.1% instead of 3% at the moment. You can make your own calculations how much Tito is destroying in the real value of your average cash balance you keep over a year. Where you own or use or buy or sell things that are not money or monetary items and these things are variable items, e.g. your house, car, mobile phone, clothes, food, energy, fuel, clothes, consumer goods, etc your are in the variable item part of the real economy. You are simply in the market for these things: you are paying market prices for these items in the variable part fo the real economy.

You are in the constant items part of the real economy with your salary you receive, the taxes you pay, the rent you pay or receive, the issued share capital of your company, the retained income in your company, etc.

Here your company accountant makes as if he is very dumb and assumes that there is no inflation at all. All company accountants do this. Your company accountant assumes that there is no inflation in SA only for this purpose. He assumes the Rand is perfectly stable. But we all know it is not. Your salary is a constant item. Your company accountant should increase your salary by about 1.2% per month at the moment.

He does not do that. He assumes there is no inflation - only for this purpose and nothing else. So he pays you out the same salary every month end. So he destroys the real value of your salary at 1.2% per month or 11.1% per annum. So to the retained income and the issued share capital of your company and the taxes he pays over to the government.

In total all accountants in SA destroy billions of constant item real value every year in SA. No-one forces them to do that. They can stop assuming there is no inflation in SA only for this purpose anytime they want to. When they do they will maintain b billions and billions of real value in the SA economy, increase economic growth and create more jobs in SA.

"Will the two ever meet? If so; when? If not, who should care?"

The two are always there together.