You'd need to do quite a bit of number crunching to verify but I think he is right - odd as it may be - because of the administration involved which is carried by SARB.
We simplify QE to "printing more money" to get to the nuts and bolts of its macro effect but the mechanisms of operation and administration involved are a lot more complicated. More importantly as with many dumb ideas there are levels of YOLOness that can be adopted with regards to QE. If the SARB governor were to issue out a warranted negotiable instrument for 200bn rand and buy up Eskom debt with it the administration is very little but that isn't the nudged proposal here.
Instead a less "hold my beer" and more let's lean against a wonky rail until we think it will break and we'll fall to our death is being advanced. This means SARS is going to have to have reams of administration as it sources the bonds it is supposed to buy up and so on. SARB acting as governments bank has administrative costs (just like any other banking relationship) and even if these costs are absorbed into the lending function the admin is carried first and recouped later putting a strain on the SARB. Normally some of the other operations of SARB allows SARB to fund its own operations without issue.
The administrative burden is exercerbated by the fact that any QE activity will result in both currency trading operations spiking up and a flood of monitored transactions of money leaving the country and the like. Again all of which is administrative costs for SARB.
Explaining how electricity is generated for most purposes doesn't entail considering the properties of metals used for boilers but that doesn't mean that such things aren't important - context matters.
SARB here is being lobbied to put more coal into the furnace to generate more electricity. We'd normally point to the fact that the coal supply will run out but the fact that the boiler itself will meant is a relevant issue.
Graeme <grae...@gmail.com>: Apr 14 01:53AM -0700
Hi,
Can someone help me understand Lesetja Kganyago comments below:
A large QE programme carries the risk of being inflationary, and costly to
the Reserve Bank, so much so it could *render the bank insolvent within a
year*, Kganyago said. This would add to Treasury's debt burdens. "A big QE
operation wouldn't lift the budget constraint. Instead, it would end up
saddling the Treasury with yet another bankrupt government enterprise
asking for a bailout," Kganyago said.
https://www.news24.com/fin24/economy/full-blown-quantitative-easing-could-bankrupt-the-reserve-bank-kganyago-20200618
How could printing money to buy government bonds bankrupt the SARB? That
doesn't make sense to me.
I suspect he's just bullshitting the ignorant, capitalizing on fears that
SARB ends up like Eskom or SAA, causing the currency to fall dramatically
like in Zim. He does this to alleviate political pressure to engage in QE.
Of course I'm against QE, I'm just questioning the argument Kganyago makes
against it to make sure I understand things properly.
Thanks,
Graeme
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