Old Mutual On The Money
Old Mutual On The Money
Chief Economist, Johann Els, Talks Inflation, Interest Rates, Cost of Living and Investments
What is "economics" and how does it affect you? Our Head of Financial Education, John Manyike asked our Group Chief Economist, Johann Els, to demystify things. His clear-cut insights will help you understand your place in the economy, its impact on your life, and tips to use that knowledge to your advantage
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Old Mutual 0:00
Welcome to the on the money podcast with John manyike.
John Manyike 0:04
Welcome to Old Mutual's On The Money show, where we talk all things money. Today we're talking economics. We know one of the laws of life is that we've got unlimited needs, but with limited resources. To join us and unpack things on economics and what economics is all about. We're joined today by JohanN Els. Johann Els is the Group chief Economist at Old Mutual. Welcome to the show.
Johann Els 0:30
Thanks so much, John.
John Manyike 0:32
So I think maybe let's start from the beginning. I mean, people need to know who is this, Johann, where you from? You know, where were you born and where were you raised?
Johann Els 0:41
Yeah, okay, I didn't expect that. I was born and raised in George, beautiful town in the southern cape. I've loved economics from early age onwards. Studied it from standard six, when grade 8.
John Manyike 0:56
You are even revealing your age people are talking about grade 6, you are talking about standard.
Johann Els 1:00
I was going to tell that uniqueness. And then I studied at Stellenbosch with a bursary from the Reserve Bank. Worked at the Reserve Bank. Then worked at Trust Bank, one of the first constituent banks of today's Absa, yes. And then moved to Old Mutual, and the date is 1991 so I've been part of the furniture for some time in Old Mutual Pinelands.
John Manyike 1:21
Okay, but you became the Group chief economist in 2023
Johann Els 1:25
Yes.
John Manyike 1:25
Okay. What did you study?
Johann Els 1:27
I studied BCom, then did my Honors in economics, and then did a Master's in economics, and then went to the Reserve Bank to work there to repay the bursary of course. But you know, John, that's an academic qualification when you walk out of university with a MCom in economics, you know nothing about economics. Economics is very practical, and that's what's taken me many, many years to fully understand how all these things fit together.
John Manyike 1:56
Okay, so for a person who has no clue what economics is all about. What is economics?
Johann Els 2:02
Well, in practical terms, it's very simple. It's really the study of human behavior. What you feel about the potholes in your street, or how angry you are when there's no electricity, or do you feel confident about the country's future, or do you as a family have enough money to live by every month. So it's all those very simple things, the way that we live day to day, and you mentioned earlier on limited resources, and we all make our utmost to make a living out there and provide for our families. So that's what economics is all about. If you and I feel confident about ourselves and the future the economy will thrive. If we're depressed about our incomes, job opportunities, or what the economy is doing, or what politicians are doing to the economy, then that is what's going to drive our decisions. Do we spend? Do we buy? Do we go out to a restaurant, and all of these things then drive the economy.
John Manyike 3:00
Why is economy such a big issue with governments around the world?
Johann Els 3:05
Because the need to provide for the population, for the voters. Politicians, they need voters to vote for them, and so are people in jobs. Are people earning enough money? That is one of those inputs. In terms of, does the economy grow? You need the economy to grow to provide more jobs for the unemployed or more income for those that are employed, to get the tax income, to provide the basic services like policing and building roads, building airports. So it's a very integrated system from policies that drive economic growth, but then you and I, in terms of our decisions, also drive the economy, and all of that, bring tax income to government, and then they make decisions on how to spend that. Sometimes it's irresponsible spending. We know that very well in South Africa, and other times we're moving in the right direction. But the same as you and I, have got a monthly budget. Governments also got a budget and the way they handle that, that has an impact on the economy as well.
John Manyike 4:07
So economists talk about economic indicators. What are these economic indicators? What is their significance, and what are the limitations with?
Johann Els 4:17
Yeah, so this whole bunch, let's, let's look at a couple of them. GDP, it stands for gross domestic product. It's really the economy, the size of the economy. Everything that goes into that, what you and I spend, what government spends, what businesses spend, and what businesses invest. In other words, buying new machinery and equipment, or building a factory, or governments building roads. All of that goes into the economy, but then we also import goods from other countries that gets into the calculation, and we export produce here to export to other countries. So the sum total of all of that is GDP, and how much that grows, that's economic growth. So this year is a bit higher than last year. Or when we had the covid crisis, there was a big slump, because there wasn't lots of activity taking place, and then negative growth, and that's the important part that drives other decisions. So that's GDP. And of course, one big one that you and I as consumer focuses on inflation. Perhaps we can explore that a little bit. Nobody really understands inflation. The man in the street, it's a difficult concept, but it's very simple. It's the average change in prices of the goods and services that an individual buys. So there's going to be lots of different inflation rates across the country. Each one of us will have his own inflation rate, because I spend my money differently than you spend your money. I might buy whiskey. You not at all. So I've got a weight in my basket of goods and services I buy. That includes whiskey. You not, somebody else might spend a lot in terms of education, because you might have three kids. I've got one child, so I spend loss. So they're different baskets multiplied by the changes in prices of those things that we buy, that's inflation. So inflation, if it rises too much, it takes away from your ability to spend your money, because prices increase too much, that's right, then you have to cut back in terms of your monthly budget. Petrol prices, for instance, petrol prices rise significantly. We've got limited monthly budget now. We have to spend on petrol to get to work. We have less money to spend elsewhere. So all of this influences inflation. We need inflation to be as low as possible, because Ronald Reagan said, ex US president in the 80s, inflation is enemy number one, and I totally agree with that, and the Reserve Bank agrees with that, because then coming to interest rates, when inflation is too high, the Reserve Bank lift interest rates so those of us with Debt pays more interest on that debt through that process, it means we have less money to spend elsewhere. The Reserve Bank try to control inflation. So it's, of course, not great for us to have to pay more interest on our debt but that's all in part of managing the economy. And then, if I can get back to policy, we talked about government's budget, that's what we call fiscal policy and interest rate decisions that's made by the Reserve Bank, not government, that's called monetary policy, the interest rate decisions. So you've got fiscal policy from government, monetary policy from the Reserve Bank, and the mix of these two policies, that's what drives the economy. Government has also got control over other policies that allows economy to grow, and that's hugely important as well.
John Manyike 7:50
Okay, so I'm glad you touched on the issue of inflation, because I think what resonate with a lot of people is the fact that maybe 20 years ago, I would buy a loaf of bread for for five rands, for argument's sake, but now I'm spending 20 Rand for for bread. What has happened there
Johann Els 8:11
Over time Prices do go up, but also incomes go up. Wage and salary increases normally go up by at least inflation. So let's say inflation is 5% most workers get more than 5% increase every year. So the process of inflation, prices go up as well over time. And people like to compare that, as you did now, a loaf of bread 20 years ago was this price. Now it's that price. It seems horrific, but actual inflation, the definition of inflation is now compared to just one year ago. So I can't compare now versus 20 years ago in terms of the inflation calculation. And part of that is also important. Let's say the price of a bottle of water goes up from 10 Rand to 15 Rand, then that's a huge inflation rate. Yes, but, but if it stays at 15 Rand for a full year, the percentage change calculation 15 Rand divided by 15 Rand as a percentage change is 0%. So when the price stays unchanged for a year, it's 0% Yeah, and all of these different things. And so there's hundreds of components in inflation. Gets added together, price changes, then we get to an average inflation rate for the country that's 5.2% people say, Johan, I don't agree. Can't be it's much higher. But coming back to the point there are 63 million different inflation rates. And the 5.2% for the country, that's the average of all of those 62 million inflation rates.
John Manyike 9:48
Let's talk about this CPI, because we often hear the consumer price index. So what makes up that basket? You know, for us to say this is the average, and I think you talk to the point you made earlier, that we all have a different inflation rate. Your inflation rate is not the same as mine. Just because you are, you are told that there's a CPI of 5.9% for argument's sake. That doesn't mean that applies to everyone.
Johann Els 10:14
Yeah, so in the average for the whole country, that basket. Food, that's a big component of our daily spend or our monthly spend. So there's food in there, and within food, you've got the meat, the bread, the milk, the cheese, chocolates, sweets, sugar, all those things within food, then you've got the other consumer goods that you and I buy, clothing, shoes, furniture, appliances like TVs, microwaves, etc, but also cars, vehicles, that's included, whether it's a new car or secondhand car. And then of course, electricity goes in there, because you and I spend money every month on electricity, water and other services like medical services, health, medical aid payments, education, and then, of course, personal stuff, like toothpaste, like hair spray, and then movie tickets, TV or DSTV, subscriptions, insurance, all of these things. So everything that you can imagine, think about your monthly spend? What do you spend my money on every month that goes into that basket? And of course, it's a complicated sum, and people say, No, I don't trust inflation. But in South Africa, the method that statistics South Africa calculates inflation and the way that they collect prices at the stores every month, 100% absolutely best practice across the world. So our inflation number is a good, solid, reliable number.
John Manyike 11:49
Okay, here am I. I won 1 million from lotto, but then I decide I don't want to spend this money because I'm working. I decide to go to my garden and I dig a hole, and I put it in a safe, and I close it there, and I shall see this money 20 years later. 20 years later, that 1 million, what is the power that 1 million?
Johann Els 12:13
Firstly, John, you'd be lucky if it's still there after 20 years in your garden, but it's still 1 million. Let's say it's there. It's there. It's still only 1 million. Yeah, there are so many other options that he could have made money on that money. Yes, and that's so important, and a fantastic question. Some people would put it there in the garden or under the mattress, but then it's the same amount. Then some people would put it in the bank, and at least they earn interest on that money every year that interest build, and over 20 years, yeah, you would make a lot of money on that. Other people would say, Hang on, I'm willing to take a little bit of higher risk in the bank. It's safe under the mattress it might be safe unless you there's some thief coming into your house. Bank, it's safer get some return. But if you put your money in the economy, you realize the economy is growing. There's companies out there that makes money profits out of us spending money in the economy. So the stock exchange, you go and invest that money into these companies that make profits out of the economy. Shares on the stock exchange, that growth over a period of time has been more significant than what you would get into the bank. So you might double your money in the stocks that you buy. So we call it unit trust. You don't have to buy that directly, and there are various options, but I always believe that it's somewhat higher risk. Think back to covid, the lockdown in March, April, 2020, the markets collapsed. But that's the thing about investment. You invest for the long term. Markets have since recovered way beyond that. So people that actually bought shares at that low point now have made a lot of money. So that money continues to grow exponentially. In other words, it grows and on your growth, on the extra that you made, on top of your regional money, that grows even further. I always say, we go out and rush to Game or Macro or Woolies or Checkers when they've got a sale on when stuff is cheap, we buy extra, we stock up. But when the market is cheap, like when it collapsed in covid, we don't buy. We actually sell because we think it's going to fall further. But we've seen over long periods of time that the stock market continues to go up, despite some short term volatility or short term falls, it goes back up. So in terms of your question, don't put it on the mattress or in the garden. Yeah, invest it somewhere. But you need a financial advisor. That's right. You need somebody to help you to invest that money.
John Manyike 14:54
So in other words, that 1 million Rand that is in the garden, somewhere in the garden. 20 years later, it's it's still a million Rand, but it cannot buy the same amount of items that it would have bought 20 years ago.
Johann Els 15:10
No, it wouldn't because the inflation has gone up.
John Manyike 15:13
The inflation has gone up which means, because prices have gone up. Maybe, let's say, at the time 20 years ago, it could have bought me a house worth a million, but maybe 20 years later, it can't buy the same house.
Johann Els 15:26
No, it can't even buy a car.
John Manyike 15:27
It's actually worth less. So effectively, that's what you're saying.
Johann Els 15:30
Yes. So that's why you need to invest it so that you make money on your money and every year you make more money on the money, yeah. So that's why you can then 20 years later, that money has grown significantly. And important point, hopefully that money has grown more than inflation. So your inflation line goes like that, but the money has grown stronger than inflation, and that's why you don't put it in the garden. You don't even put it in the bank. But then there's this thing about diversification. You invest that money, some of it in the bank, some of it in shares, some of it offshore.
John Manyike 16:10
I'm glad you said that, because a lot of people are thinking, as soon as I have I lay my hands on money if I want to save the only place I can save the money is in the bank.
Johann Els 16:19
No, it's not.
John Manyike 16:20
What other options are there apart from the bank? Because all I know is that, yes, you can leave the money in the bank, but surely the bank is using that money to borrow other consumers, and then they are making money from that money.
Johann Els 16:31
The bank is making the money of your money. Yes, they're giving you a little bit of that, yes, but not enough. So if you go out to a financial advisor and say, I want to invest my million and diversification. In other words, don't put all your eggs in one basket, in the garden, and that's just one basket. All your eggs are there, all in the bank, just one basket and diversification, meaning, put an egg here, and egg there, and egg there, equities or stocks on the stock exchange or unit trusts that's all invested in stocks that shows stronger growth than just in the bank. But to put your eggs everywhere, and not just in one place, I wouldn't put all my money just in stocks. I would spread that money. Some people put it offshore. Say, hang on in the US or in Europe or in China, I might get more money on my money, better returns. Yes. And then there's a there's people who say, put all your money offshore in other countries and not in South Africa. I say that's wrong as well. You should have money here. You should have money everywhere. But I think you should have most of your money in South Africa most of us, are going to retire here. In other words, we're going to spend our money here in retirement. So you want to invest most of your money here. And of course, that depends on what you think about economic growth. It depends on how risky you are. Are you willing to accept that there's going to be risk if there's a covid crisis, stocks will fall, yeah, but you don't sell because you stick to your plan, yeah. Speak to your financial advisor and you stick to your plan because it's a long term plan, yeah, if it's a well thought out plan.
John Manyike 18:09
Okay, so what is the role of banks in an economy?
Johann Els 18:13
So they facilitate all these transactions. Imagine in the old days, back hundreds of years ago, we bartered. I had a mirror and I wanted food that you've got but you wanted the mirror. And we exchanged goods. And then gradually money came. And then was still difficult, because there wasn't an intermediary, somebody that handles it. So banks or the financial system, they handle all of these transactions, and it's become much more sophisticated than just even 100 years ago, and imagine 1000 years ago. So the banks handle all these transactions, but the banks really, essentially, if I can use the word create money. So if you put that 1 million at the bank, the bank's got it. They pay you a little bit of interest on that, but they take that money and they lend it out to other people. So say, I want to borrow money, I go to the bank, and I ask the bank, can I have a loan of 100,000 and they use some of your money to give to me. Yes, I pay, of course, a much higher interest rate than what they give you, and that's what the bank makes, but that's for the services they render.
John Manyike 18:40
That's right.
Johann Els 18:47
And if you think all payments, you want to pay me, but you don't give me cash you pay me through an EFT or bank transaction into your bank, through your bank, to my bank and to me. So the banks handle all of that, but the bank plays a huge role in the system, because now imagine foreign investors want to come and invest in South Africa or trade. We export coal to China. Banks handle all those transactions that happens. So banks play a huge role. And I don't think any economy can run without the best and that financial system, yeah, and it's all interlinked. Can I briefly say our banks, our financial sector in South Africa, is very healthy, well regulated, very sophisticated. I haven't seen a check in 20 years.
John Manyike 20:11
Ah no, those are outdated.
Johann Els 20:14
My son was in the US, working at a ski resort in December, still got paid by a physical check. So South Africa stands out in many instances.
John Manyike 20:24
All right, so you spoke about the role of banks in an economy. Let's talk about the role of the Central Bank, the Reserve Bank. What is the role of the Reserve Bank?
Johann Els 20:34
So they protecting this financial system? Yes, they the guardian to make sure the banks are healthy. So they check the bank's statements and the way they lend money and the way that they take deposits, and the way this whole system works. So the Reserve Bank plays a hugely important role there. So you need that regulation. You can't just allow Bank A to do what they want to. You need to keep a check on them. That's part of that well regulated financial system, but the Reserve Bank is also an independent, totally independent, can't be impacted by what government says or what the President says, The guardian of the economic system, really the fighter of inflation. So they set interest rates, which we set monetary policy to check on what inflation is doing to guard against. And our central bank is a great institution in terms of their independence, firstly, but also in terms of setting that policysetting interest rates. They realize, as I said earlier, inflation is enemy number one. So they want to keep inflation stable and as low as possible to protect us from prices just accelerating, which would hurt our ability to spend our money I mean, if prices just keep on rising, 10% 20% 30% per year. But the Reserve Bank is also very independent. If I can tell this story briefly, in South Africa, the president cannot fire members of the MPC, the Monetary Policy Committee that sets these interest rates within the central bank, and appoint his own people just willy nilly, he's got a role in that. But in Turkey, for instance, in 2021 the President fired MPC members of the central bank, appointed his own people, and they cut interest rates because that's what that president wanted at that time, at the time when Turkey's inflation was heading to 100% now imagine 100% prices rise 100% year after year cut interest rates. That was irresponsible. In South Africa that cannot happen. We've got checks and balances because of the Constitution and the Reserve Bank Act. So what I'm trying to say our reserve bank is playing a hugely important role of managing this economy.
John Manyike 22:50
Okay, still talking about the Reserve Bank. So banks borrow money from the Reserve Bank and and there's a repo rate, the rate at which they repay the money back to the central bank for having borrowed the money, and then there's a consumer there. Please explain that whole mechanics of the repo rate versus the the rate at which banks will charge consumers and every time the central bank talks interest rate or whether they cut or increase.
Johann Els 23:18
So let's start with previously we said, we go to the bank to borrow money, or the bank then lend that money onto somebody else. Sometimes the bank hasn't got enough money, so they go to the central bank. Central Bank is really the Bank of banks.
John Manyike 23:34
That's right.
Johann Els 23:35
The banker of all these banks. So the bank goes, as you say, to the central bank, and say, I've got a shortfall today, so I need to borrow 20 million. That's the interest rate, the repo rate, as you say, that they pay on that loan now, to make money on this these transactions, they lend that money onto us as consumers, and we pay the prime rate. So the prime interest rate is what you and I pay for the money we borrow from the banks that's more than the repo rate, three and a half percent above the repo rate, but through the setting of the repo rate. So if the Reserve Bank realizes inflation is too high, they need to fight inflation. They raise the repo rate, so the banks now have to pay more on their money that they borrowed from the central bank. So they've got less to lend out to us, yes. But in same time, the prime rate, the rate that we paid to the bank, also goes up, because the repo rate has gone up.
John Manyike 24:33
That's right.
Johann Els 24:33
So through this process raising interest rates, the Reserve Bank tries to limit the money they lend to banks and the money banks lend to us.
John Manyike 24:42
That's right.
Johann Els 24:42
And through that process, and also the money that we borrow becomes more expensive. Through that process, they control try and hold back on the economy a little bit to fight inflation, yes, to make sure prices doesn't rise as fast.
John Manyike 24:57
Okay, so now this is just the reason why Every time the Reserve Bank increases interest rates, rather, let's say the repo rate, the banks follow suit and they increase their prime lending rate. So as a consumer, if I was paying 5000 Rand on my bond now, I'm going to be paying extra because the Reserve Bank has increased now.
Johann Els 25:18
Yeah, absolutely.
John Manyike 25:20
And then how does that impact consumer spending power when the interest rates are increased and versus in the context of controlling inflation?
Johann Els 25:32
Absolutely. So now let's say you've got the monthly budget 10,000 Rand, but suddenly you pay more on your interest portion of that budget, and incidentally, you pay more on petrol as well, because petrol prices have gone up. So suddenly, of your 10,000 monthly budget, your interest payments and your petrol have increased, let's say, from 2000 to 3000 in total. So you've got the 1000 less to spend elsewhere. So all those extra incidental stuff. When you're at the toll and you thought, okay, I'll buy this chocolate. Or monthly, you go to the spur, and suddenly, this month, I realized, hang on, I can't go to the spur. So that money is less than spent into the economy. So if you multiply that across all the households in the country, suddenly people are going out less to the spur. They don't buy all the chocolates, they don't buy all the cool drinks, they don't go to McDonald's on their way home. So less money being spent in the economy. That means businesses are they are struggling now, their profits aren't so great because their turnover isn't so great. We as consumers don't spend so much. So they can't put up their prices as much as they wanted to. So that is the process, by controlling the money that we spent in the economy through higher interest rates, and sometimes, as I say, petrol prices or other external cost push factors, forces us to spend less. Prices can go up less. You force everything to slow down a little bit, and inflation gets under control.
John Manyike 27:02
Okay, one of the pain points for a lot of consumers is fuel price. Yeah, so please just unpack this. What makes up a fuel, fuel price? What influences the fuel price?
Johann Els 27:15
So firstly, we haven't got oil in South Africa. Okay, so we've got some resources in gas, etc, but we haven't got oil. Despite the fact that Sasol makes some petrol from coal, we haven't got oil. So we import all the oil. So we dependent on the price of the oil, and that's heavily dependent on what happens in the rest of the world. If the world economy is growing strongly, there's more demand for oil. Prices go up. Sometimes, OPEC, this organization of oil producers, decide they want the price to go up, and they reduce their output, their production, so they send less oil into the market. So the oil price is hugely important. When there's unrest in the Middle East, where a lot of the oil comes from, apart from some countries in Africa and some countries in Central America, then the prices of oil goes up because traders in oil realize there might not be enough oil to go around if there's unrest in the Middle East. So the oil price, but because we import it, we have to pay in Rands for that oil. So the Rand's exchange rate is hugely important. If the Rand is weak and oil prices gone up, the Rand price of oil goes up significantly, and that's what is determining the petrol price, and that's why we've seen the petrol price go up every month, in February, March, April and May this year, thus far, it's gone up because the Rand was weak and the oil price has gone up. Fortunately, heading into June, the Rand has strengthened and the oil prices come down. So it looks like petrol prices in June will be reduced by one Rand per liter, but it's all about price of oil and the rent exchange rate.
John Manyike 28:58
What are your predictions in 2024 in terms of how the interest rate is likely to play out.
Johann Els 29:06
Yes. So this fact that petrol prices have remained very high that has kept inflation higher than what the reserve bank wants. So if I can go back to inflation and the reserve bank wants inflation between a range of 3% to 6%. We call it their target range. The midpoint of that, the middle between three and six is four and a half. So the Reserve Bank ideally wants inflation at four and a half. It's still above five because of petrol price increases. The Reserve Bank realizes that you and I, when inflation is high, our expectations remain high, and that's a big driver. We walk into the shop, we see the price of bottle of water or chocolate has gone up. We say, Ah, I knew it would happen, but I have to buy it. And I buy, yeah, that's inflation expectations. Or when salary time comes around, I tell my boss, I want inflation is 5.2 I want six. All of this drives inflation, the reserve. Bank wants to fight that through interest rates as we explained. But now, because inflation is not low enough yet, they're keeping interest rates where they are. I still think inflation will come down this year. We've seen many of the components of inflation, like clothing and shoes and furniture and appliances and even cars, coming down quite a bit because of interest rates that high. The whole process, we explained in terms of less money being spent, so prices are coming down. Underlying inflation numbers have been coming down. So the Reserve bank will probably soon start to cut interest rates. But they do it in increments of 0.25%, 25 basis points. So I think there's still going to be interest rate decreases this year. So that will help consumers, that'll reduce their interest bill every month, and they've got a little bit more money to spend, so it'll ease up a bit for consumers.
John Manyike 30:55
You know, people are feeling the strain because of the rising cost of living. Is there anything that government can do to cushion consumers from the rising cost of living?
Johann Els 31:08
Ideally, the best thing government must do is policies that gets the economy to grow stronger year after year after year, because stronger growth means businesses would have to produce more to do that, they would have to employ more people. Those people get a wage and a salary, and they spend that money in the economy. That means more production, more employment. So this economic growth thing, that's what government needs to do. They do other things as well within their budget. They pay social grants, for instance, money that paid out to people that can't get a job or won't be able to work. So that helps as well. That money helps people to lift them out of absolute poverty. They spend that money in the economy, so that helps. The biggest thing government must do, get the economy to grow on a sustained basis. And part of that feeling, when we say it right at the start, economics is the study of human behavior. We don't really trust that government is doing the right thing. But in my opinion, we're moving in the direction. When Eskom failed, when we didn't have electricity, when Transnet had issues at the harbors, in terms of logistical issues, government allowed the private sector to take up that role. So suddenly the private sector is generating electricity. Private sector is starting to help Transnet at the harbors and on the railways. So this private sector activity will drive better economic growth. So I think we on a path where economic growth will begin to lift so more people will be employed. Already between the beginning of 2022 and March 2024, 2.2 million new jobs. So that helps the consumer. If you think 2.2 million times all the wages and salaries that they earn that's money that they spent in the economy. And the more the economy grows as I expect it will because more private sector role in the economy more employment more money being spent in the economy and then circular effect so the best thing government can do get the economy to grow stronger because that will help everybody.
John Manyike 33:13
I'm sure there are people who are thinking but if we have a problem with unemployment and poverty, why can't the Reserve bank print money and distribute, give us all of us money and why can't they?
Johann Else 33:23
What we call it is demand and supply, if there's too much money available imagine suddenly you and I get a million each in Reserve bank.
John Manyike 33:32
I wouldn't mind.
Johann Els 33:35
We all would start spend that money I wouldn't mind either but now we spend that money. Suddenly there's a lot more money than products available. What happens? Prices go up, inflation goes up, foreign investors won't like it, the Rand will collapse. So Reserve bank can't print money that'll drive inflation more than 100%. More than 1000%. And then how do we fight that? Then we put interest rates. There are countries in the world that has got interest rates much, much higher than 100% because they haven't been fighting inflation enough. And once inflation starts, run away, it’s enemy number one. No, the Reserve bank can't print money even though you and I wanted to limit to.
John Manyike 34:14
Yeah. Wow. Johann, thank you for giving us that economics 101. I'm hoping we can have part two of this because I thoroughly enjoyed this conversation. And I think anybody who didn’t understand economics at least will have some idea on what’s happening behind the scene.
Johann Els 34:28
Thanks very much.
John Manyike 34: 29
Thank you for coming.
John Manyike 34:30
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