# General Business Category > Business Finance Forum >  Budget for interest rate increases

## Dave A

We may be in for a period of relatively low interest rates, but I suggest if you're taking on new commitments, make allowance for the fact that interest rates could well rise again in the not too distant future.

First of all we have the budget deficit. Pravin Gordhan has indicated that tax revenue is down significantly, but government will keep on spending.



> Stanlib economist Kevin Lings said he expected the budget deficit to approach 7%.
> 
> "That's quite high in South Africa's history," said Lings. "But our level of debt is incredibly low by world standards, so we are able to absorb this.
> 
> "They could raise taxes, but that is not a likely option, seeing that the economy is this weak. It wouldn't be the right move." He said it was risky to forecast the revenue shortfall a few months into the tax cycle.
> 
> "However, government expenditure is well ahead of budget and it's hard to see that getting reined in," said Lings.
> 
> Schussler said that interest rates are likely to increase, meaning that rates in the immediate future would probably not fall by more than half a percentage point.
> ...


So no great disaster for now, but sooner or later you have to pay the piper.

Second, we need to look at what is likely to happen in the recovery. Keeping on top of inflation is going to be a real handful, and with capital markets seemingy severely damaged, I think it's going to take some pretty healthy returns for liquid finance to come out and play.

Ultimately I'm troubled that our balance of payments relied so heavily on capital inflows when times were good. Do we have the capacity to build a healthy economy without reliance on external capital props when the recovery comes this time round? If not, capital funding is going to be a precious, and possibly expensive resource.

----------

Graeme (05-Jul-09)

----------


## sgafc

You right Dave, interest rates are likely to increase again. I hate to sound negative, but will the world economy ever recover? This time around the strategy is to bring the economic system  completely to its knees, and replace it with the New World Order. Which will be completlely different from the world as we know it. In the pipeline is One World Currency, Microchipping  of people etc.

Unless we wake up, and create our own alternative economic systems, the end is of the world as we know it, is here....

----------


## Marq

> and replace it with the New World Order.


Not yet - we need the Third world war to get going properly and 2012 scenarios to play out.

In the predicted scenarios of Siener, Notradamus, Cayce, Mother Shipton and others, as far as I know, there is no final world order for economic purposes as we think. It will be a new consciousness raised by a war of attrition whereafter the new age starts anew.

And my favourite of course is from LZ
_And as we wind on down the road...
Our shadows taller than our souls,
There walks a Lady we all know
Who shines white light and wants to show
How everything still turns to gold.
And if you listen very hard
The tune will come to you at last...
When All are One and One is All --
To be a rock and not to roll. _

----------


## sgafc

And If you think there are no alternative economic systems.....check this out

http://money.cnn.com/2009/06/23/smal...air_trade.fsb/

----------

wynn (07-Jul-09)

----------


## Marq

Yep -Bartering been around forever in various forms.

This article reflects a small town scenario where a basic swap of services does the trick. In an ongoing scenario however it seems to fail as an element of greed and consideration of value becomes an issue. It may have worked in the old days and it may work in a rural economy, where basic needs are the only issue but in todays world where we have many other items at hand and have seen a competitive marketplace work the odds are a bit skewed. 

That however is not the reason it will not work in your world dominance scenario.

The taxman, politicians and power corporates like the banks will close it down. They cannot control it and they get no return from it. Therefore it is evil and therefore they will go out of their way to ensure its downfall. :Devil:

----------


## sgafc

No disrespect, but how do THEY(Banks, Corporates, Government) close it down? If I ask my plumber client to fix my leaking pipes(which I have done in the past), in return for forgoing a portion of his accounting fees, I have committed nothing illegal. Will the authorities come and "unfix", my pipes :Roll Eyes (Sarcastic): . Remember you cannot put a price tag on value exchanged nor is it,next to impossible to control :Stick Out Tongue:

----------


## Marq

> I have committed nothing illegal.


mmmm....Now you are telling me as an accountant the vat act has not covered this point somewhere. The Income tax act I am not sure about but sure its in there somewhere and have not the time to find it there.

The general clause used by the taxman is 
_



			
				"consideration"

in relation to the supply of goods or services to any person, includes any payment made or to be made (including any deposit on any returnable container and tax), whether in money or otherwise, or any act or forbearance, whether or not voluntary, in respect of, in response to, or for the inducement of, the supply of any goods or services, whether by that person or by any other person, but does not include any payment made by any person as a donation to any association not for gain;
			
		

_
Ask Garth Le Roux, whether he had to get his pipes unfixed.
Check here

And then if you havnt seen the Banks and corporates in action as they shut your water and electricity off - cause you cannot barter that with the municipality and need cash to pay for it which you got from the ......bank.

What happens when you need...say my electrical expertise, and I do not need an accountant? How are you going to pay me? If you set up a trade credit bartering system with a group of suppliers - you are going to need to introduce the concept of 'value'. You can place a value on the barter trade and it has been done before. I have seen and been involved in these Barter Exchange systems - all have failed thanks to one entity.....the tax man.

----------


## sgafc

Thanx for the insight. Quite scary if you think about the methods that could be employed by the authorities, to maintain control. Many people, including myself, however remain committed to exploring the bartering system. I agree that the VAT/Income Tax Act look at the "consideration", not whether money was exchanged. In the plumbing example scenario, I did in fact raise an invoice, in both my books and the clients books for the "service", it is just that no cash exchanged hands. The Vat and Income Tax  on the transaction was duly paid.

While exploring alternatives to the current system, people should never break any laws, be they common or taxation.

Even cash as it is could be a viable means of trading, if it wasnt tainted by the banking system, ie banks creating money "out of thin air" and charging interest on it. This is the problem, not the bartering system, not cash, not even Debit Cards. 

As soon as CREDIT is introduced, it creates the opportunity for manipulation. Since so much CASH and trade in circulation is DEBT Based(overdrafts, credit cards), people are exploring alternatives.

The GFC was caused by "Reckless" lending(read intentional financial crisis creation), to make people dependent...

----------


## Dave A

As Marq points out, the problem with pure barter is it isn't sustainable to any large scale without becoming another form of currency.

The problem with barter groups that I've had experience with is that the instigators tend to "create money out of thin air." I wouldn't touch any of them with a barge pole.

At least the banks have some level of oversight.

----------


## Marq

> At least the banks have some level of oversight.


Arrrggggg......we were doing so well up to this point. :Offtopic:  :Big Grin: 

Even though barter has its downside, there has to be a mechanism along these lines that can work outside the controlling banking system. Barter offers a potential alternative or at least a potential that can maybe be worked into a viable system. We just have get back to basics, keep it simple and pull out the human survival type conditions that relate to a maslows needs rather than a - where am I going to get my next buck from needs - and stop turning to the banks for support that they will never give. Their 'level of oversight' is unacceptable given that they only have themselves in this picture.

----------


## sgafc

Most Bartering systems do not try to supplant, normal cash. Some schemes actually endeavour to boost cashflow. And your are correct, controlling the bartering system can lead to all sorts of problems.

Our banking system, however is not clean. It is believed that the banking system is corrupt to the core. An alternative exchange mechanism may only work if the banking, "money out of nothing" system is destroyed.

Banks will have to close their doors if no one made loans, overdrafts or used credit cards. And that is even staying within the banking system, using only money in  accounts, by paying cheques within limits(without overdrafts or overdrawn facilities), using debit cards. 

If banks start loosing money,  due to less excessive interest(prime plus), maybe only then  can we exert pressure on them to either get their act together or close shop.

The concept is simple. If I have R1000.00 in my account, I can only spend 
R1000 nothing more. Spending money we dont have, on things we dont need is the biggest contributor to our current debt crisis. 

Overdrafts are another controversial "loan". Many businesses think they cant survive without it. Unless an overdraft is strictly used as a tool that finances working capital, and reverts to a nil or favourable balance, sometime, the user of an overdraft is in big trouble(ask many a business owner who was faced with a reduction facility, myself included) and the unfair charges and interest. All the so called benefits are outweighed by the subsequent problems. The reality is, we only have the benefit of an overdraft, once, therafter it becomes a nightmare.

Coming back to the money system. If we not going to look at another method of exchange, we will have to take action(peaceful, non violent, non compliance with the banking system). We cant whine and whinge about bank charges and interest rates and do absolutely nothing about it.

----------


## wynn

A barter exchange seems like a great idea, even the PE paper has a swop column where you put your requirements up, say, "Mountain Bike, Nishike, R1500 or what have you"

So I could publish on a 'Barter Exchange site 'new bathroom needs to be plumbed R15,000, what have you?' provided I have something of equal value to barter.
The plumber then looks at what else is on the site to the value of R15,000 sees a bakkie he likes and so on until someone sees my ad for 'antique dining room suite' that they want and so the circle completes and everybody is happy?

I agree that it won't work with a credit system because someone will rip you off, but if you all have one or many things adding up to same value, material or labour, you have a deal.

----------


## Graeme

Read a book titled 'The Darling Buds of May'  a riotously funny book about bartering and paying no tax.

----------


## sgafc

Bartering is not the only way to go. Alternative currencies can maybe help.

I use the services of a company that draws debit orders on my behalf from my clients accounts. Before any debit order can be logged, the clients signs a contract. The discount company that I use have a website, where I can see all the debit orders registered.

In terms of an arrangement with this company, I have my staff salaries paid directly from this account. Last month I started using the facility to pay my creditors directly from the proceeds of a particular d.o. run. My reasons for migrating to this system is due to an aversion to the banking system, as highlighted before. I envision a scenario where 60 to 80% of my bills will be paid this way.

Now take the scenario above, and replicate it on to a non-cash situation. 
1. An organisation/ company is established with the sole purpose of managing units of exchange.

2. Units equal to a rand is created, lets call these units "Freedos"(freedom)

3. 1 freedo=R1 or whatever other currencies.

4. Interested participants buy 1000 freedos at R1 each.Once purchased they are furnished with a (debit)card and password.

5. This password, enables them to log on to a website, where they keep track of their freedos.

6. When they make purchases, their freedo balance is debited.

7. They credit their freedo account with any sales services to any interested party, in the same manner as highlighted in the debit order scenario.Debits to paying customers, and credits to selling merchants.The card can be swiped at machines or processed on a website of an approved merchant.

8. The managing company, will derive income from an admin or service fee, but will not charge any interest.(interest can be manipulated).

9. All transactions are recorded for tax purposes.(laws are obeyed).

This might look simplistic, but if we look at the manner, in which it operates with the debit order company, where I deal with NO cash, and yet my bills are still paid, it might work. Bear in mind, that the values we deal with here are only, Rand-values, but no cash changes hands. And every transaction is completely transparent. 

The banks have been doing the same thing, "figures on computer screens", debits on cards, cheques etc are moved around as "money", and they start charging interest on it.
Only difference with my suggestion, is that the UNITS/Freedos, will come into existence through real purchases, not DEBT!

What is done with the "real cash " raised from Freedo sales?This is transferred into a reserve, which can fund interest free loans to small businesses!

----------


## Dave A

Take a look at the Barterchek system.

Years ago this was introduced in South Africa too - and it looked like a great idea. I got lots of business and pretty soon I had a healthy pile of Barter credits (enough to buy a fairly nice car). I remember going to one network evening in Durban looking for somewhere to spend my Barterchek credits when the penny dropped. Every single person there also had excess credits and were *also* far more interested in spending than selling.

So what was the problem, I hear you ask? Obviously this produced lots of business. Well, it's only profitable business if you're getting paid in something of worth. There was no way I was going to buy anything of worth with my Bartercheks unless I found some new sucker who had just joined the system.

It turned out the folks running the system were buying everything they needed with Bartercheks and had effectively flooded the system with credits. For them the cost was printing the paper. If you don't get how this works exactly, take a look at what happened to the Zim dollar over the last ten to 15 years.

Oh my, we made it so easy for those bastards. Someone new joined and they'd be flooded with enquiries and "sales." They probably thought it was manna from heaven. But when they came to spend their loot suddenly no-one was that interested.

Anyone else got taken by Barterchek SA here?

----------


## sgafc

Point taken. Just that I noticed that by using my D.O. company to transact, that I did not use any cash at all.

Setting up these systems require effort and discipline, and they face huge challenges. We furthermore have meddling and /or obstruction by the authorities, that makes it next to impossible to set up these schemes.

The world banking system have nevertheless mastered the art of trading in non-existent money, backed up by a plethora of central bank laws and governments. They also created a situation as equally disastrous as the Zimbabwe situation and worse than the situation that you have experienced(trading credits).

Latest news reports reveal that the US Economy is in for another major bailout. Where does all this money come from when the American Economy recorded mega deficits?

I am not suggesting that an immediate implementation of some bartering/ trading units will solve our financial woes. But alternatives will have to be explored, if we are to survive the major Crash that awaits us.

----------


## Dave A

I can't help thinking it would be more productive focusing on developing more producers of value and fewer consumers of value. Playing around with currency systems just shifts the problem around a bit; it doesn't solve the root cause.

----------

