Conversations with my friend Arnold on the recent Economic Downturn

this is an extract of an email conversation I had with a learned friend of mine based in Germany about the recent european and US economic woes and how it relates to Zimbabwe. Hope you can glean a thing or two from it.



My dear brother
 
it was interresting listening to and reading European and American press and public relation agents blasting the Zimbawean economic strategy of pumping cash into their economy after the world bank has rejected lending Zimbabwe cash.
 
Now it is also interessting listening to and reading European and American strategy of pumping cash into their economy after market forces have been pushing their economy to ressesion. (Double interest rate reduction, Tax cuts, and Low income cash bonds are all strategy to pumping cash into the economy).
 
I was thinking on a discussion we had in Wupertal. To those my brothers who are also keen on financial issues, I'll want you to reflect on why and how our economic and financial well being should be developed and sustained without soliciting loans from any lending organisations.
 
Hope we can thread and/or exchange ideas on such issues.
 
Stay blessed,
 
Arnold.

My reply:

Grand Obos, How did I know only a big brain like yours will think of something like this.Well since you asked, let me oblige and say a word in response to your comment.

If you think about it, money is really a representation of value. In its paper form, it has not value. So in an environment where there's more value, there's more money. By value I mean goods and services.Economically speaking, you can pay someone for something that has future value or will generate future value. For instance, buying a house.

Much of the economic problems we hear of on the radio is due to money that's been lost due to investments in assets that they(investors) thought will have future value. This future value unfortunately has (may) not materialised, reason why banks are writing off huge sums from their asset portfolios and in the process running out of cash.

What the central banks have done then is to issue loans to these banks to allow them invest more and buoy up their economies. Reducing interest rates also reduces the burden on loan & mortgage repayments hence guaranteeing return on investments (cash) for the big banks.

In the case of Zimbabwe, there's very little value circulating internally. So printing more cash simply makes more paper available for very little goods and services. The net result is inflation (more money being paid for very little goods & services). What Zimbabwe needs is to generate more value from its resources. i.e increase production in agricutural products, mining etc and most importantly find people who are willing to buy them.

However, due to sanctions, there's no investment in their economy at the moment and most of europe does not want to buy anything from them either which means national economic output is at a minimum.

Remember, paper money is worthless without any goods or services.

That's really the point I am trying to make.
Nupa

Read my blog at: http://blogs.happysend.com/geraldnupa


Published Thursday, 31 Jan. 2008. 00:01

COMMENTS

 
Sun, 30 Mar. 2008. 15:03 by Arnold

So, while recession is used to indicate a diminishing interest in once valued Good(s)/Service(s). Inflation is state where more money is in a market than valued Goods/Services. In a situation of inflation, deflation strategies could be employed. In a situation of recession, market psycology, and interest rate strategies could be employed to boost the economy in the quest to producing/providing valuable Goods/Services. The application of one strategy in a given market can, through market interdependency, drive a loss in value of some pivotal goods/services in a collaborating market.

 

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