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Mobile Loans Ponzi
Rank: Elder Joined: 12/7/2012 Posts: 11,935
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I hope this settles the panganga that has been going on here.  In the business world, everyone is paid in two coins - cash and experience. Take the experience first; the cash will come later - H Geneen
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Rank: Member Joined: 1/1/2011 Posts: 396
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Angelica _ann wrote:I hope this settles the panganga that has been going on here. Great basic video.
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Rank: Member Joined: 2/20/2007 Posts: 767
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The problem with fellas who feel they are knowledgable because they probably sat in an economics class and learnt about FED rates and such things is they forget hapa ni Kenya, sio ulaya. Example 1. Assume no fuel price control in Kenya. All OMCs hold alot of working stock on loan. Do you want to tell us that if interest rates go up then price of fuel will go down ( again, assume no price control in place) Example 2. We are currently in a situation where interest rates are controlled. This has caused rates to be relatively low. Has this led to increase in money supply? Example 3..... Loading They must find it difficult....... those who have taken authority as the truth, rather than truth as the authority. -G. Massey.
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Rank: Member Joined: 2/20/2007 Posts: 767
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Example 3 In the Kenya CPI, housing is one of the components. When interest rates go up, the price ( interest) on existing mortgages go up. The landlord whose property is on mortgage will increase the rent. Is this equal to reduced inflation related to increasing interest rates? One may argue that rate of new mortgage uptake will go down thus less buildings come up and thus reduced demand on building materials. However, in KE, existing mortgages are more at any one time than any new mortgages that will be purchased by virtue of say a 3% drop in interest. So effect of rate change is greatest on existing mortgages( on a weight basis) rather than on future potential mortgages. They must find it difficult....... those who have taken authority as the truth, rather than truth as the authority. -G. Massey.
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Rank: Member Joined: 1/1/2011 Posts: 396
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tom_boy wrote:The problem with fellas who feel they are knowledgable because they probably sat in an economics class and learnt about FED rates and such things is they forget hapa ni Kenya, sio ulaya.
Example 1. Assume no fuel price control in Kenya.
All OMCs hold alot of working stock on loan. Do you want to tell us that if interest rates go up then price of fuel will go down ( again, assume no price control in place)
Example 2.
We are currently in a situation where interest rates are controlled. This has caused rates to be relatively low. Has this led to increase in money supply?
Example 3..... Loading Example 1: prices will rise on any good that is deemed essential and scarce to an economy. We are an oil (refined) importing country. Oil is both essential and scarce in Kenya so prices would indeed rise without price controls. The ERC uses a combination of forced competition via the open tendering system (on the importation leg) and price controls at the pump. So variation in Central Bank rates would not have the free market impact we would expect on this unique and critical commodity. On example 2: again this is an artificial analysis. The central argument against controlling interest rates is that it DENIES the Central Bank one of its most vital tools in responding to and tampering the effect of over and under supply of money within the economy. Without the cap in place, the Central Bank would be better enabled to tame rising prices and even manage exchange rate fluctuations. Right now, the Central Bank's ability to do so are extremely limited and results in implementation of very draconian control measures such as calling trading desks on an intraday basis whenever there is any fluctuation in rates.
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Rank: Member Joined: 1/1/2011 Posts: 396
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tom_boy wrote:Example 3
In the Kenya CPI, housing is one of the components. When interest rates go up, the price ( interest) on existing mortgages go up. The landlord whose property is on mortgage will increase the rent. Is this equal to reduced inflation related to increasing interest rates?
One may argue that rate of new mortgage uptake will go down thus less buildings come up and thus reduced demand on building materials. However, in KE, existing mortgages are more at any one time than any new mortgages that will be purchased by virtue of say a 3% drop in interest. So effect of rate change is greatest on existing mortgages( on a weight basis) rather than on future potential mortgages. Housing costs are part of the CPI basket of goods and services comprising about 19% approx. of the total CPI basket. This 19% segment of the overall CPI basket includes water and electricity. So the inflation rate would not be overly affected by rate rises and subsequent, assumed, rental cost rises. In your quoted example, you assume that most landlords are leveraged and that they can hike rates without notice, which is not the typical case. In addition, they often focus on retaining consistent tenants. So pricing changes are much less sensitive to intra-year interest rate changes. However, the food and non alcoholic basket has significant sensitivity to price changes. If rates rise, the INFLATION rate will slow. Overall prices may not necessarily drop, but the pricing growth RATE , i.e. inflation, will slow down. One of the CBK's mandates is maintaining price stability and helping the country avoiding booms and busts, not necessarily reducing overall costs of goods and services.
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Rank: Member Joined: 2/20/2007 Posts: 767
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jmbada wrote:tom_boy wrote:The problem with fellas who feel they are knowledgable because they probably sat in an economics class and learnt about FED rates and such things is they forget hapa ni Kenya, sio ulaya.
Example 1. Assume no fuel price control in Kenya.
All OMCs hold alot of working stock on loan. Do you want to tell us that if interest rates go up then price of fuel will go down ( again, assume no price control in place)
Example 2.
We are currently in a situation where interest rates are controlled. This has caused rates to be relatively low. Has this led to increase in money supply?
Example 3..... Loading Example 1: prices will rise on any good that is deemed essential and scarce to an economy. We are an oil (refined) importing country. Oil is both essential and scarce in Kenya so prices would indeed rise without price controls. The ERC uses a combination of forced competition via the open tendering system (on the importation leg) and price controls at the pump. So variation in Central Bank rates would not have the free market impact we would expect on this unique and critical commodity. Now I see where the problem is.
Economists are trained to think in terms of free markets. Problem s that free markets do not exist. At least not in KE. What we have is the REAL MARKET, where fuel price can go up with increase in interest rates (if no controls). I dont get your last part by the way, the part in red. Are you saying that on this critical commodity (fuel), the price would obey free market economics and go down with rise in rates IF there were no controls.On example 2: again this is an artificial analysis. The central argument against controlling interest rates is that it DENIES the Central Bank one of its most vital tools in responding to and tampering the effect of over and under supply of money within the economy. Without the cap in place, the Central Bank would be better enabled to tame rising prices and even manage exchange rate fluctuations. Right now, the Central Bank's ability to do so are extremely limited and results in implementation of very draconian control measures such as calling trading desks on an intraday basis whenever there is any fluctuation in rates. [color=green] . They must find it difficult....... those who have taken authority as the truth, rather than truth as the authority. -G. Massey.
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Rank: Member Joined: 2/20/2007 Posts: 767
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jmbada wrote:tom_boy wrote:The problem with fellas who feel they are knowledgable because they probably sat in an economics class and learnt about FED rates and such things is they forget hapa ni Kenya, sio ulaya.
Example 1. Assume no fuel price control in Kenya.
All OMCs hold alot of working stock on loan. Do you want to tell us that if interest rates go up then price of fuel will go down ( again, assume no price control in place)
Example 2.
We are currently in a situation where interest rates are controlled. This has caused rates to be relatively low. Has this led to increase in money supply?
Example 3..... Loading Example 1: prices will rise on any good that is deemed essential and scarce to an economy. We are an oil (refined) importing country. Oil is both essential and scarce in Kenya so prices would indeed rise without price controls. The ERC uses a combination of forced competition via the open tendering system (on the importation leg) and price controls at the pump. So variation in Central Bank rates would not have the free market impact we would expect on this unique and critical commodity. Now I see where the problem is.
Economists are trained to think in terms of free markets. Problem s that free markets do not exist. At least not in KE. What we have is the REAL MARKET, where fuel price can go up with increase in interest rates (if no controls). I dont get your last part by the way, the part in red. Are you saying that on this critical commodity (fuel), the price would obey free market economics and go down with rise in rates IF there were no controls.On example 2: again this is an artificial analysis. The central argument against controlling interest rates is that it DENIES the Central Bank one of its most vital tools in responding to and tampering the effect of over and under supply of money within the economy. Without the cap in place, the Central Bank would be better enabled to tame rising prices and even manage exchange rate fluctuations. Right now, the Central Bank's ability to do so are extremely limited and results in implementation of very draconian control measures such as calling trading desks on an intraday basis whenever there is any fluctuation in rates. Here, I disagree.
Our CBK has never been able to control interest that bank charges by changing CBR. This is until controlls came in. I may be wrong on this but I believe our rates in Kenya have historically been set by the tbill rate. Banks have historically looked at tbill rate and added a premium. They pretend they are looking at CBR but in effect its the tbill rate that mattered. Problem is that this self same tbill rate was a product of auction at the market in which banks participate. The CBK was traditionally always faced with the hard question of accept the high rates offered by banks or have no money to fund govt operations. Thus high bank interest rates always persisted thanks to high govt borrowing. So the story we are constantly fed about CBK regulating interest rates via CBR blah blah blah and now they are handcuffed yada yada is a big fat lie. Ask yourself, why is it that currently long tenor bonds are getting low subscriptions currently. Could it be that with up coming loans repayments, banks suspect that CBK will be forced to pay more on bills and bonds in the near future. When the time comes, banks will bid high and CBK will be squeezed to accept. Thats the waiting game right now. Meanwhile the banks are still making money on mobile ponzi as they wait. They must find it difficult....... those who have taken authority as the truth, rather than truth as the authority. -G. Massey.
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Rank: Member Joined: 2/20/2007 Posts: 767
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I think this discussion has really digressed. But it has been interesting for me. I guess a major question to be answered is " Do mobile loans lead to an increase in money supply? " Money may not be available to the middle class conventional / traditional bank borrower, but has money become more available to the 70% of low income earners that constitute this economy? Does the typical mobile loan borrower think about interest rates? Would it be a moot point trying to use normal free market logic to say with high borrowing rates, inflation rate will slow down? Of course the premise of this free market theory is that borrowers are rational and will avoid borrowing when rates go up and vice versa. Does this apply to mobile loan applicants? They must find it difficult....... those who have taken authority as the truth, rather than truth as the authority. -G. Massey.
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Rank: Member Joined: 1/1/2011 Posts: 396
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tom_boy wrote:jmbada wrote:tom_boy wrote:The problem with fellas who feel they are knowledgable because they probably sat in an economics class and learnt about FED rates and such things is they forget hapa ni Kenya, sio ulaya.
Example 1. Assume no fuel price control in Kenya.
All OMCs hold alot of working stock on loan. Do you want to tell us that if interest rates go up then price of fuel will go down ( again, assume no price control in place)
Example 2.
We are currently in a situation where interest rates are controlled. This has caused rates to be relatively low. Has this led to increase in money supply?
Example 3..... Loading Example 1: prices will rise on any good that is deemed essential and scarce to an economy. We are an oil (refined) importing country. Oil is both essential and scarce in Kenya so prices would indeed rise without price controls. The ERC uses a combination of forced competition via the open tendering system (on the importation leg) and price controls at the pump. So variation in Central Bank rates would not have the free market impact we would expect on this unique and critical commodity. Now I see where the problem is.
Economists are trained to think in terms of free markets. Problem s that free markets do not exist. At least not in KE. What we have is the REAL MARKET, where fuel price can go up with increase in interest rates (if no controls). I dont get your last part by the way, the part in red. Are you saying that on this critical commodity (fuel), the price would obey free market economics and go down with rise in rates IF there were no controls.On example 2: again this is an artificial analysis. The central argument against controlling interest rates is that it DENIES the Central Bank one of its most vital tools in responding to and tampering the effect of over and under supply of money within the economy. Without the cap in place, the Central Bank would be better enabled to tame rising prices and even manage exchange rate fluctuations. Right now, the Central Bank's ability to do so are extremely limited and results in implementation of very draconian control measures such as calling trading desks on an intraday basis whenever there is any fluctuation in rates. Here, I disagree.
Our CBK has never been able to control interest that bank charges by changing CBR. This is until controlls came in. I may be wrong on this but I believe our rates in Kenya have historically been set by the tbill rate. Banks have historically looked at tbill rate and added a premium. They pretend they are looking at CBR but in effect its the tbill rate that mattered. Problem is that this self same tbill rate was a product of auction at the market in which banks participate. The CBK was traditionally always faced with the hard question of accept the high rates offered by banks or have no money to fund govt operations. Thus high bank interest rates always persisted thanks to high govt borrowing. So the story we are constantly fed about CBK regulating interest rates via CBR blah blah blah and now they are handcuffed yada yada is a big fat lie. Ask yourself, why is it that currently long tenor bonds are getting low subscriptions currently. Could it be that with up coming loans repayments, banks suspect that CBK will be forced to pay more on bills and bonds in the near future. When the time comes, banks will bid high and CBK will be squeezed to accept. Thats the waiting game right now. Meanwhile the banks are still making money on mobile ponzi as they wait. It is the Treasury that borrows money, whether for short or long term. The CBK is the Government's Banker and also a regulator. They help mitigate outsized market fluctuations. And any bank charging above KBRR which CBR +4% per annum is patently illegal.
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