Friday 23 August 2019

Banks - The True Modern Day Alchemists - Can Solve Youth Unemployment and Control Sierra Leone's Soaring Prices (Entrepreneurship is the answer)

As a young person I have a first-hand experience with the difficulties young people face in finding employment our country. But I should start by telling you what I truly believe. Despite the challenges we face as a country, I believe deep down that we would all like to wake up in a prosperous Sierra Leone where things such as youth unemployment and our ever soaring prices are both things of the past. I also know that an economically flourishing Sierra Leone is in the best interest of every Sierra Leonean - including the president, all members of parliament, business owners and each and every other Sierra Leonean. Why? Well, from a purely pragmatic sense, government depends on taxes to execute its basic functions and pursue projects of national importance. With a strong and flourishing economy our government can raise taxes from its own people without relying on aid, the president and all other policy makers can go to bed in peace without worrying about unemployment and uncontrollable prices. Isn't that what we all want? Also, I am simply not able to think of anyone being happy to captain a sinking boat.
Of course, probably because youth unemployment (you can call some of it underemployment) has been a part of Sierra Leone’s narrative for such a long time despite changes of government, it is easy to perceive the problem as unsolvable. However, this is not true, in fact unemployment and soaring prices in the presence of banks is an absurdity.
The backbone of my thought here is that while the banking sector (when not well managed and directed by Government) can be a major source of the ever rising prices, they are also perhaps the best remedy for ending unemployment and creating inflation-free, stable and sustainable economic growth that I believe you so desire.  In this post I am going to push a theory of national development and poverty eradiation based on using banks for the national good.
An economy can be distilled into two basic economic activities; production and consumption (spending). It is the millions of individual production and consumption (spending) activities that take place in our villages, markets, households, communities, businesses and government offices that all come together to form what is known as the economy. While production takes place in three forms; households, market and public, it is market production that that holds the keys to economic transformation because it doesn’t only create new goods and services but it also redistributes benefits to its stakeholders.

On the other hand, we have consumption (spending) – here our problem with banks and rising prices comes. In an economy there are two ways to finance consumption; through what you earn (income) or by lending (credit). Credit can be created from thin air! Whenever, you go to the bank to borrow money or whenever you go to the nearby shop to buy a bottle of Sierra Juice and promise to pay at a later date, you have simply created credit. What many people don’t know is that a significant part of what they think is the money supply is actually just credit.  Credit has extremely powerful implications, it allows us to be able to spend beyond what our current incomes can afford. But credit creation, when not carefully managed, can also be extremely dangerous for a country and will inherently result to the problems we have been experiencing.

When banks lend money (creating credit), this can go into three main paths, only one of which can produce the types of results we want for our country. First, credit can be created to finance productive activities such as providing start-up capital for new enterprises creating employment and new goods and services. Second, credit can be used to finance speculative activities in the finance industry. Thirdly, banks can lend to people to finance household consumption such as buying a new television or building a residential house.

Mr. President, it is the second and third forms of credit creation that creates higher prices and leads to economies overheating and bursting into financial crises. When banks are left on their own, they won’t prioritize lending for new enterprises, especially for small and medium enterprises which are the perfect engine for the creation of employment.

Governments in many countries (for good reasons) have historically delegated the role of credit creation

          (To Be Completed...do reason with me...)

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