This paper tells the story of how the Kingdom of Mauritius stopped growing. Of how a King and his closed circle using tyranny, fake statistics, heavy financial repression and all of the state companies’ free cashflow, was still unable to compensate for their unfathomable incompetence.
Author
Yuuki
Published
September 17, 2024
El Chagossian Dólares
There is a dark and disgusting secret out there in politics and in the commercial world. You already know it, intuitively because you have lived it, time and time again. Politicians do not place you very high on their priority list unless there is a vote out there to win in the near future. The same is true for multinationals. If there is no competition, then there is no need for any multinational to give a flying duck about your health. Morality without competition does not exist. You are stuck with me grins Mesle every time it gets away with murder. Beta also chuckles when it sells your data. Plenty of such examples across time periods but you know, Europe’s degeneracy during absolutism should be a good enough example. Climate is also a good example — without the introduction of a carbon tax to bring more competition into the energy market, nothing is ever going to happen. This is why, the moment you lose democracy, it’s over, the moment you do not matter, you are kind of screwed in the real world. By the standards, I have given you here, democracy does not exist in the world currently. You tend to think, that democracy is in your vote. That is not really true. Democracy is in your market power as a population. Can you prevent the monopoly in any way? Then you are powerless. Can you prevent your state leader from stealing the next elections? Then you do not matter.
In Mauritius, we lost our democracy after the 2019 election was almost certainly stolen. You can see it in the actions that followed, how totalitarian our country became in the years that followed. Because your opinion no longer mattered to the boy. He no longer needed any approval. But you know this always happens, after an election in general, anywhere in the world, given enough time. You are kind of like a used condom for the politician then. God, it felt good to use you, but you have outlived your purpose. You are kind of an eyesore now. It is time, I throw you out but I’ll see you again as soon as my seat is at stake. Adiós mi amor. The story of the Chagossians is kind of like that. Nobody truly cares about them but them. Anybody giving a damn is only in it for the money or the free PR. Same thing with the drug fighting in our country, how is it that just when elections are near or public sentiment is completely down in the dumps, huge drug busts magically happen. How is it that just before elections politics start to care about you excessively? Come on now.
So, in what I have just discussed with you, therein lies the truth of why our country is obsessed with the chagos and is bipolar in its treatment of the chagossians and agalegaens. It is because it really needs the liquidity (additional savings). Not because of its people. Not because of sovereignty. Not because it cares. Not because it has values. HECK NO. Its money. Diego Garcian money. Because they banked on the US to be their sugar daddy in this case for a few a hundred of millions dollars and were played by the UK. They must be incredibly salty and bitter about that one.
Le Roi Soleil
Our fate is strongly linked to the EU because they were the country that historically had the biggest external demand for our goods and services. So, the story goes like this, following the financial crisis of 2008 our trade with the UK took a big hit and dwindled completely over time. That was the first big blow of external demand that we got from the EU, and the second came because of Greece, where the government there was doing things that the Sun King would eventually do here. Fake national statistics to enter the european union. That triggered a crisis in Europe when the cat got out of the bag because this foolishness put the whole currency union at risk, which slowed all of Europe down. Mauritius at the time, relied a lot on EU/UK trade. This negative shock to the EU, put a dent in the progression of steady external demand bumps we were getting from them every year. Add to that US manufacturing finding cheaper alternatives for their textiles needs leading to less external demand as well, and you get what is called a current account reversal. The main cause that led to all of this was the loss of preferential trade advantages when the MFA was phased out and the EU abolished sugar quotas.
The EU’s external demand peaked in 2008 and started receding heavily in 2012 rather than recovering. That forced us into a recession because of what we call, a current account reversal although in 2013 statistics were embellished because elections were near so as to not show the logical effect of a current account reversal which is a sharp reversal in demand, and that embellishing has not stopped since today. We did not experience a real sudden stop because although demand waned, hot money flows did not recede from the global business sector (We are experiencing one now though since 2020). The only market we have made real progress is South Africa. So, our trade with South Africa has increased today, so much so that we are very much a periphery of the African core today, rather than our past role of being the periphery of Europe which was clearly short-lived and inefficient, because it rested principally on generous trade deals. Let us see using COMTRADE data how GOODS external demand panned out over time from these sources.
Show the code
%%captureimport numpy as npimport wbgapi as wbimport pandas as pdimport opinionatedimport matplotlib.pyplot as pltfrom cycler import cyclerfrom opinionated.core import download_googlefontfrom matplotlib.ticker import FuncFormatterplt.style.use("opinionated_rc") download_googlefont('Atkinson Hyperlegible', add_to_cache=True);plt.rc('font', family='Atkinson Hyperlegible')plt.rc('axes', prop_cycle=(cycler('color', list(['#00308F','#007FFF','#6F00FF','#4C516D'])) * cycler('linestyle', ['-', '--', ':', '-.'])))def reformat_k(a,b):if a >1000or-1000: val =round(a/1000,1) new_tick ='{:.0f}K'.format(val)return new_tickdef reformat(a,b):if a >1000000or-1000000: val =round(a/1000000,1) new_tick ='${:.0f}M'.format(val)return new_tickdollar = FuncFormatter(reformat)thousand = FuncFormatter(reformat_k)
Now, remember though that is only goods trade. There is still services trade which has been okay with tourism. But, while the services trade has been steady, except in the covid period when tourists could not come in, the services trade was in no way ever exploding. That is because their capacity is much more restrictive by design (capacity) and quality (price). Do you want to welcome 2 million tourists? Too bad, we do not even have that amount of seats available per year in chartered flights by Air Mauritius. Nor in hotel capacity. Do you understand how services trade for tourism works? It does not explode. It is steady with some growth here and some contractions here and there but there are zero economies of scale to it. The problem with the services trade is that lately, it is faked because of its inclusion of GBC hot money flows, to mask our problems. But you must face reality as it is. There are foreign currency problems in our country because that artificial GBC hot money flow added to services export is not money we can use. When you look at the data crudely, things are just getting worse and worse, total net goods trade in particular. Let’s look at all of this in the next chart.
Show the code
df = wb.data.DataFrame(['ST.INT.RCPT.CD','NE.EXP.GNFS.KD','BN.GSR.MRCH.CD'],['MUS'],time=range(1960, 2024, 1), labels=True,numericTimeKeys=True)df.set_index('Series', inplace=True)df = df.Tdf.plot(figsize=(11,5))plt.gca().yaxis.set_major_formatter(dollar)plt.legend(loc='best',fontsize=14)opinionated.set_title_and_suptitle('Tourism and Real Goods and Services Export','Tourism earnings prevented us from going into crisis by giving us fresh savings, until 2020.')
External demand was really dry for the last 10 years and that would be me sugarcoating things. The damn thing had no progression, there is no other way to put it. This chart should also let you know that net goods trade has crossed a critical point where tourism alone cannot sustain it anymore, so the government is taking loans that will hang over your heads for decades to come where you will need to work like a slave to repay them. We do not even know how much the debts of this country really are today, everything that is thrown at you is as fake as these people these days. There is opacity in the real finances of the country. Now to be able to continue with our analysis of what really happened in the last ten years, we need more data, to be able to go on. I will give you a chart that you may need to come back to periodically, as we move along. I will be applying everything that was in Macroeconomic Laws 1 and 2 by basing myself on these statistics.
So first things first, the numbers which the government has been giving you every year are the production numbers, the expenditure number is what has really been going on which believe it or not is also compiled by the government but they choose to discard it as inaccurate data, and the potential output is the maximum capacity of the economy based on a Hodrick-Prescott Filter. Let us debunk the government propaganda first, before going any further. In 2012, you can see the current account peaks at a deficit of -1.5B dollars. Government claims that from 2013 to 2019 the economy of the Republic of Mauritius has been expanding. Our task is to answer whether that is possible given these indicators. Let us first look at potential output and actual output which here are production estimates. We can see that the output gap widens more and more while inflation is consistently decreasing, bottoming out in 2019 at sub 0% and close to deflation. That is a problem, a country with a positive output gap has to have inflationary pressures. Monetary policy during that time period was particularly loose. Rates were not raised once, rather only dropped lower from 2014 to 2019, and given we ‘presumably’ expanded so strongly. Yet again, inflation never came, which again does not make sense. Third problem, goods and services exports were not expanding strongly as we can see from the trade to GDP ratio, most of the expansion came from domestic activities. However, domestic activities are not ever very productive, unless highly aided by new technological breakthroughs. Do you know of anything that our country invented that could explain these numbers, did we invent a new secret technology in the Kingdom of Mauritius, besides the archaic one which is to blatantly lie to your population 24/7? Someone who works at a KFC in Mauritius where output per worker is only around 8K USD is just as productive as someone who works in DC in the USA where output per worker is over 200K USD. Someone who works as a hair cutter in Mauritius is just as productive as a hair cutter in the District of Columbia. The same goes for construction workers, retail workers, hospital workers, and any non-tradable service you want. Do you understand? Unless there was a strong population surge for the total output of the non-tradable sector to expand, the same people would not be more productive over time doing the same non-tradable work. This is why the United-States can rely on non-tradables, India can rely on non-tradables expansion, China can rely on non-tradables. Mauritius cannot, it has to expand its tradable sector. If its output growth is not coming from more trade with the world, it is fake, unless the working population has massively surged. Let’s check it out.
Show the code
df2 = wb.data.DataFrame(['SL.TLF.TOTL.IN'],['MUS'],time=range(1960, 2024, 1), labels=True,numericTimeKeys=True)df2.set_index('Country', inplace=True)df2 = df2.Tdf2.plot(figsize=(11,5))plt.gca().yaxis.set_major_formatter(reformat_k)plt.legend(loc='best',fontsize=14)opinionated.set_title_and_suptitle('Labor Force of Mauritius','You got conned dummy, interpret it yourself as an exercise. Remember your solow model.')
So why were these numbers surging in Mauritius? Do you want to know why? Because if they faked their exports, international trade is a double entry system, it would be easy to know. So they cannot fake GDP by boosting goods export numbers. They can misdirect people, using services export which they did with global business hot money flows but even that, it is not a fake number, it is just extreme bad faith. You have to understand that the money did come in and did go somewhere else. Technically, you could call it an export. In good faith though, out of respect for your citizens, you would avoid it and leave it in the BoP. But this is how every country fakes its GDP. Mauritius itself faked its GDP using this production numbers boosting trick in the 1980s when shit got too ugly. Countries make their existing nontradable sectors more productive than they are and that will mess up their trade to GDP ratios. The trade to GDP ratio went below 100% in the 1980’s and recently. That is a mathematical impossibility for a small open economy. It is only possible for open and closed economies with considerable domestic resources. Let’s just prove it.
If an economy has to import everything it needs and engages in exports then this economy’s total trade is higher than its gross domestic product. ( Mauritius is such an economy ).
Suppose an economy has to import everything it needs every year denoted by a list \(m_{1},m{_2},m_{3}...m_{n}\) for a total value \(M\). Let such an economy then add some value \(c\) to every import \(m_{1}...m_{n}\) by using it in each sector of the economy and in exports such that total value added \(c_{e}=c_{d}\). Let domestic demand and exports be the sum of their respective endowments of imports \(m_{n}\) denoted \(m_{d}+m_{e}\) which is equal to the total value of imports denoted \(M\). Exports are then denoted by \(m_{e}=M-m_{d}\). The following inequality thus presents itself.
Our country has broken this law two times. That is a mathematical proof. Undeniable proof that the statistics are fake. Once in the 1980’s and recently in 2020. It is important to note that in reality total value added for exports \(c_{e}\) are much higher because they involve tradables. Manufacturing for the world rather than manufacturing for your very small economy. Therefore by making \(c_{e}=c_{d}\) and ignoring it, the conclusion should not change. If anything \(c_{e}+m_{e}>c_{d}\) always holds. The reverse \(c_{d}>c_{e}+m_{e}\) implies a small open economy can ultimately progress without exporting which is just not real. This is what the Kingdom of Mauritius basically claims. That we could have higher and higher real GDP without exporting more and more. That madness is why inflation is so high close to 94% after just four years. What you are being told by the Kindgom of Mauritius is not real. In fact this relationship is real telling of economies who are faking their GDP’s because they would have to inflate \(c_{d}\).
On the flipside though it is good to note that open and closed economies often does have consequential domestic resources which makes \(c_{d}>c_{e}+M\) always hold and by a long shot because it does not import/trade as much. Plenty of countries use that trick though, not just Mauritius but that is another can of worms entirely which is not mine to care about. There are plenty of other flaws, in the expansion story, for example, our country has a thriving local industry for food, beverages, beers, toiletries, detergents, soaps, milk, sauces. You know, we do plenty of stuff locally via licenses, or on our own. Why is real manufacturing flat lining then, if demand is so strong? Some of that ‘output expansion’ must come out of these products we manufacture locally. There are holes everywhere, depending on how well you understand economics. So, let us transition to what really happened exactly.
La casa de papel
So, from 2012 onwards the current account contracted, tell me macroeconomically what should be the effect of this? Real savings should increase. Okay, now I did not cover this but this is how it happens in real life, decisions are actually made each quarter in all economies around the world, and the fact that real savings increased from 2012 to 2017 is but a summary of all that. You must be able to know the deeper parts too, not just what goes on at the surface level. At the deeper level, what happened in Mauritius is that in the first quarter of the year 2012, inventories started piling up a lot, which made businesses in general change their decisions from importing more to importing less, which is a process that repeated itself, until 2017. Businesses started importing less because they had too much inventory already, which caused an excess supply of goods and services on the local market with dwindling demand. What does that do? It pushes prices down. Which pushed inflation down from 6% to sub 1% in 2017. What does that mean? Less tax revenue is it not? If you are importing less and less every year because there is less demand for goods and services? So, what does it mean for Government budgets? From 2014, the real numbers were always less than the ones that were thrown at you every budget.
So tell me, how did your King, make that noose tighter back then exactly? Do you know how? Do you know what actually happened to your pension fund? The NPF? Your pension fund was the liquidity they needed to supplement their budgets to cover that lack of tax money because output was no longer increasing. Indeed, you financed your own suffering unbeknownst to you. Now is this a crime? Not really, plenty of countries do this rather than raising taxes. Taxes are unpopular but financial repression? I bet you did not even know what this word meant ? But plenty of countries have done it since world war 2. France did it which is why it had to reform its pension system to be able to accomodate the deficits it accumulated because of financial repression by pushing the age of retirement up. But doing it is in and of itself is a confession that there was no progress anymore, that fiscal dominance was needed, that the state needed to force agents it had control on to hand over all of their money to subsidise the state’s cost of capital so that it would not crumble because there no longer was economic growth. Indeed, your future was stolen using financial repression.1 The NPF was recklessly handled by the government, who used it to fund their cheaper lower interest debt that they issued themselves at rates they commanded and forced the NPF and Commercial Banks to buy because they could no longer afford to pay regular interest rates because the economy was no longer progressing. Its effect was a permanent transfer of wealth from you the worker to the government. Just like that. Poof.
Examples of financial repression can be found here, here, here. Those are the government’s examples which are public but their cronies received the same treatment it seems. They got your money to play with for free. Now, it does seem that things are much worse these days though. I thought only the MIC was reserved for cronies as evidenced here. To my dismay, I read in a newspaper recently that your NPF money is not only being used by the government to fund its cheap debt, it is also being used to help the government’s cronies. Government is using your pension money as if it were their’s, risking your future and your retirement in the process for quid pro quos. They are allowing people to use your NPF money without paying any interest or without demanding any collateral which is the gold standard in REPO transactions involving financial institutions, so as to insure against this silly behavior. Then again our King probably does not even know what a REPO transaction is, a King after all needs not know anything. Plus we are living in the Kingdom of Mauritius. So who gives a damn about your hard-earned money and your pension. Your life’s sweat is of no importance to your King it seems, given how irresponsibly his royal subjects have been handling it. Be grateful that your King is even giving you anything I guess. Gotta give props to Statistics Mauritius though, for doing their work honestly at the time.
The NPF money alone was unfortunately not enough over time given the amount of contractions, so eventually our King had to force the hands of state companies, engaging in even more financial repression, by getting them to also start investing in low rate treasury bills so he may again cover the difference between what is in the budgets that they showed the population and what is the true financial position of the state in reality, so as to be able to increase government spending to maximize the amount of savings they could extract from the system in a typical political machine fashion ( Every political party (machine) in the world does this and it will generally be inconsequential in countries with a high enough KY ratio because there is simply too much capital (savings) but there are some exceptions like France for example because its government is way too big – over \(>50\%\) of GDP. In countries with a low KY ratio like Mauritius it will speed up their convergence towards zero growth ). That is why, there were no inflationary pressures till 2017 where the primary balance started deteriorating and inflation started going up. Always remember your identity of max savings for the supply side to know when inflation should go up or down, given the government is the demand side, a negative primary balance will always be inflationary and a positive primary balance will be deflationary or disinflationary. You do not have to know where the supply side economy is or how high potential output is. All you need to know is that the supply side through economic growth can create X amount of new savings every year. If you spend more, you will create inflationary pressure. Before 2017, as evidenced by the current account flat lining, Mauritius was actually in a fiscal consolidation ( austerity ) and was not expanding its supply side ( productive capacity ) actively so the threshold where inflationary pressures would come in stayed the same. Anyway, you were getting robbed in broad daylight by your government who denied you of your interest, which is what destroyed the NPF because its liabilties over time outgrew its assets by way too much making its deficit become insurmountable. That is the truth, and in the end, things got so out of hand, that our King’s incompetence forced him to use more and more of the people’s money in all state companies to compensate for his own incompetence as well as his elite circle’s. And so, in 2019, they forced the hand of companies who were refusing to give them the people’s tax money so they may have fun with it and even wanted to sell state companies to raise capital. They legislated so that government nonfinancial corporations had to give all of their ‘unused free cash’ to the government. Treasury certificates they called it. There is a fun fact about this mechanic involving betamax which was paid with it. These state companies should be in all likelihood, completely bankrupt because the state is taking away all of their free cash flow as can be seen here. But then they have the arrogance of coming up with shit like this. Sheesh.
Zean Ti-rol
L’economie est au service du bien commun
La Realiter
L’economie est au service de notre roi soleil et de ses petit copains et copines.
But wait, it gets worse than this, much much worse than this because you see in 2019, becoming addicted to power, our King voluntarily pushed our country into bankruptcy just to fool your parents and grand-parents. His action to lift the pension permanently altered your destiny by being the final nail in your coffin. That is what made the liabilities of our country vastly exceed its assets in that year. The year 2019 was the year our benevolent King, not only most likely stole elections like a true King would, but he also dared to touch the most important thing in a society that is the property of all its people, like a true King would. This is what started this cycle of inflation by putting the state on an unsustainable fiscal path forever. That is why covid is not the reason your life got harder but the government’s own irresponsible actions to hold on to power. He touched your wealth by printing 18 billion rupees, to be able to debase your own wealth to pay for that increase in pensions, effectively giving you nothing while making it easier for the private sector to also pay for your new minimum wages. You effectively lost all the real value you gained for a few months after the 18 billion rupees went into circulation, into the goods and services market. In some twisted sense, covid must have been seen as a godsend for our King and his allies given that it allowed him and his close allies to pass the buck on something else. Unfortunately, the damage was already done. You see, the government ran out of money very quickly in 2020, and you probably did not know that because that was never reported. And so on a fateful day in April 2020, an auction about which there is no information and in which no primary dealers participated because there was no open market operation, ended up happening. 15 billion rupees was gifted to government to be able to benevolently continue to cover your pensions. Such a graceful and benevolent King, that the heavens have blessed us with. This is already 18+15 billion though.
That is a boatload amount of money to put in circulation. Do you remember the identity of the positive output gap I gave you when \(\dot{y}>\dot{y}^{*}\). That is happening here on steroids because our max savings is constrained to be reduced by much more than two billion dollars because of the lack of tourists back in 2020 and other economic activity. You can already see that, this is a bad combination of things, inflation has to go up a lot now. It did, but at the same time real output just kind of collapsed in 2020 and with it the King’s treasury. Our King was now in dire trouble. The NPF was officially bust, because they could not repay both the government’s own debt principals and at the same time cover the liabilities that the government had committed itself to in terms of help i.e pensions etc.. The money was nowhere to be found, so they had to act quickly and decisively and so to the money printing factory, our King went again and ordered a fresh supply of 60 billion rupees and pre-ordered 80 billion as his personal emergency fund which he called the MIC to help his closest associates, to retain their loyalty and support. Yet again another act of disrespect. Our King tends to do that a lot, disrespect the little people, the elderly people, the uneducated people. Seeing the zeros roll in, the King’s accociates let out a royal gasp of relief and went about their usual business, until they noticed that the contraction was larger than anticipated. Tourism was a bigger part of the economy than anticipated given they greatly faked GDP, so they still had to cover some grounds on financing their budget.
Again the disrespect rolled in, it is almost a disease with these people because rather than be upfront about what was happening, an income tax became a so-called new pension fund tax to replace the NPF. Not to an educated person though, the educated person knew the NPF was bust when that happened. This would be the millionth evidence of how much your Majesty looks down on the elderly and the uneducated of his Kingdom. That was unfortunately not enough though, because the state was not generating enough real savings, and seriously risked going into big inflation mode because of all those printed rupee notes that were going into the goods and services market (60+15+18). So our Kingdom did what they needed to save their necks. Had inflation snowballed, it would have been impossible to hide. For example, even before I wrote this, everybody knows the Inflation numbers are wildly fake today. It is just too obvious. Prices are rising too much and way too frequently these days. Now imagine, if everybody had known that as early as the second half of 2020. That would have opened the Kingdom to unnecessary risks. Now, that was a very unpopular policy though, because taxes increase savings, and reduces real demand (stabilizing the primary balance), and to be fair to our King, the tax did target the rich but not the ultra rich given the tax was capped. Still you have to be fair and give credit where it is due. He taxed the upper middle class hard. So yet again, in 2021 we contracted albeit very minimally of course because we were already knee-deep into a hole but we did.
Our Destiny
Because of all this another problem was emerging now because the financial situation of most state-owned companies were completely in the red because their free cash flow was with the government to help them ‘bouche trou a little everywhere to make the budget not fall apart’. So their employees’ pension/retirement and overtime PV was in jeopardy now. Everything was in serious jeopardy. Still, the Kingdom needed to find new ways to sustain itself, to be able to live another day. It did that by bleeding you and me of the little wealth that we had left. And so began operation ‘met la population touni pou vive lor zot lasuer’. First very early on, by hiking gas prices and petrol prices to capitalise on higher energy prices and keeping them ridiculously high till today, to rip off the population to its maximum but also by adding all kinds of invented taxes, like a covid vaccine tax, an oil tanker tax, a food subsidy tax, and on some occasions our King was so smart that he taxed the tax with VAT because any excuse was a good excuse to rip people off their hard earned money. Our Kingdom needed money and it needed a lot of it and it needed it fast.
So, what our King did is an action more formally called pushing a supply side indirect tax on the shoulders of his royal subjects. Such a hidden tax is designed by the Kingdom to take money from you without protest by increasing the costs of goods and services that the state itself provides to you to make up for the fact that it has taken all the money from state-owned companies and that they are all in the red. There are way too many examples of these things for me to list them all to you, they go from post office charges to port charges, to freight charges, the cost of electricity, the cost of transport, the cost of rent, the cost of bus fares, the cost of air travel, the cost of medicines, the cost of processing fees, the cost of administration fees, the cost of license fees, the cost of licence plates, the cost of fines for misdemeanors, basically the cost of literally anything that you can think of that is state-owned, whereby a production cost increase was passed to you the general population to bear its burden because that is why you exist is it not? Do you not exist to alleviate your King’s, aches and pains as well as his private circle’s aches and pains? Do you not love your King as his royal subject?
Let’s talk about our central bank now. The Central Bank has been the centerpiece in the downfall of our Kingdom. It has allowed our King to print money everytime to push all his problems on the rest of the population. The insolvency story of our King’s Bank begins shortly after he ordered them to print more than 150 billion rupees over four years. Most people tend to not understand this point, so we should take a moment to understand what it means for a central bank to be insolvent2. What are the consequences of such a thing?. Because there are big consequences to a central bank that runs on negative equity, of which the primary is a weak ability to preserve the financial stability of the banking system as a whole but the more pressing one is the inability to do monetary policy effectively which means inflation will forever have a higher floor as its global minimum. This is happening right now in Mauritius. I’ll explain it below.
So here is a very simple example of a Central Bank. It has Non Domestic Assets (NDA) also called Net Foreign Assets (NFA) valued at 30 billion rupees, Domestic Assets (DA) valued at 1 billion rupees to cover its liabilities, being Currency that is coins and bank notes valued at 4 billion rupees, Bank reserves that is commercial bank reserves held by law at the central bank valued at 10 billion and policy securities valued at 9 billion that the Central uses as instruments to do monetary policy. In addition to that the central bank like any financial institution is one that can make profits and was started at the beginning as all businesses with an amount of capital and keeps a part of its past profits as reserves while transferring the rest to the state. Easy enough?
Typical Balance Sheet of a Central Bank
Assets
(Billions)
Liabilities
(Billions)
NDA
30
Currency
4
DA
1
Bank Reserves
10
Policy Securities
9
Assets
(Billions)
Equity
(Billions)
Capital
2
Reserves
6
Total
31
Total
31
What if the central bank wants to “make” a business cycle? What does it do? It creates money and buys FX from commercial banks. This increases bank reserves so they can lend more. This is called an Open Market Operation. It can sell FX too. It has the reverse effect. Notice the increase in NDA from the central bank buying forex from commercial banks and giving them 3 billion additional rupees for it that they can now lend to businesses and consumers.
Balance sheet after expansionary OMO
Assets
(Billions)
Liabilities
(Billions)
NDA
33
Currency
4
DA
1
Bank Reserves
13
Policy Securities
9
Assets
(Billions)
Equity
(Billions)
Capital
2
Reserves
6
Total
34
Total
34
If it thinks there is too much liquidity it can issue securities to take the reserves back for a rate of return on that money. Suppose the central bank issues a security for a return \(r\). This is also an Open market operation. This operation of increasing securities by 3 billion and reducing reserves by 3 billion again is called a sterilisation intervention because it cancels the previous buy of foreign currency’s effect on the banking system by removing the previous 3 billion rupees liquidity that the central bank introduced into the system so as to not affect money demand or the interest rate.
Balance sheet after sterilization OMO
Assets
(Billions)
Liabilities
(Billions)
NDA
33
Currency
4
DA
1
Bank Reserves
10
Policy Securities
12
Assets
(Billions)
Equity
(Billions)
Capital
2
Reserves
6
Total
34
Total
34
Now let us do an example where our King comes and orders an amount of \(x\) billion rupees to be handed out. You were lied to a lot here again because your King just does not respect you. You were told that 2 billion dollars of NDA (US T-bills) were sold to fund the MIC. That was not the case. None of what you were told was true. What happened was accounting tricks which if they were to come back to bite us in the ass would put a lot of people in prison for using these tricks. SVB used this trick and was fine until they were not. One fact, I must share with you is that your King plays hard and quite honestly a good game when he uses his strengths that is lying. Using fake statistics and using fake valuations. Your King is a master manipulator and a narcissist of epic proportions. Did you know, that not all the foreign assets of the Kingdom of Mauritius are in dollars? Revaluating them periodically can thus be a huge pain in the ass because of FX movements. Somehow, though our Kingdom knew the exact numbers to devaluate our rupee to so that ‘the reserves’ would shoot up the exact amount that they needed. Pssst… it did not. They just re-evaluated it as much as they needed to. Let me show you how easy it is to do it. We go from setting up the groundwork from this. Over evaluate the assets with some depreciation as misdirection to allow a new arbitrary number and a plus to also deleverage from debt. In fact, any excessive overvaluation of our NDA (NFA) as was done in June 2024 should have you be worried because it is the first step that precedes any order that our King places at his personal money factory. It seems that our King might proceed with his usual disrespect, by giving you printed money yet again to try to fool us the slaves of the Kingdom of Mauritius ahead of elections.
Balance sheet after overvaluation exercise to print money
Assets
(Billions)
Liabilities
(Billions)
NDA
83
Currency
4
DA
1
Bank Reserves
10
Policy Securities
12
Assets
(Billions)
Equity
(Billions)
Capital
2
Reserves
56
Total
84
Total
84
To then give the reserves to government. It is totally possible that this happened again when they closed their accounts to possibly declare the revaluation of their assets as profits in June 2024, to then transfer a handsome amount of \(x\) billion of fresh rupees. There is a lot of opaqueness today. Without balance sheets we cannot know why assets were over re-evaluated to close off the financial year. In anycase though if more money is printed and introduced in the goods and services market, all you will get is a lot of inflation and a whole lot of nothing when you go buy your groceries.
Balance sheet after gifting revaluation profits to Government
Assets
(Billions)
Liabilities
(Billions)
NDA
83
Currency
4
Government
56
DA
1
Bank Reserves
10
Policy Securities
12
Assets
(Billions)
Equity
(Billions)
Capital
2
Reserves
*
Total
84
Total
84
I mean it is a little more complicated than that, but as I told you a King needs not know anything. The ‘Casse tete’ of cooking shit up to make this look normal is not our King’s problem, it is the audit team’s :D. Now our Kingdom was already in a dire position in 2015 after government killed the second biggest conglomerate in the country, so our King divided his bank’s assets strategically to earn the best return for himself as early as early as 2015 from 2014. Unfortunately, that made him quite illiquid because with liquidity came low returns and given that low returns were bad for our Kingdom, our King’s bank delegates avoided them. So here is how it goes, you can divide your NDA into two categories, an Available For Sale (AFS) book used for short-term securities or what you would call cash or cash equivalents in an accounting class and a Hold To Maturity (HTM) book of which longer duration securities with longer maturity profiles that are more exposed to interest rate risks are a part of. So, after gifting our government with a considerable amount of money, our example central bank reached the point where suffering a loss, almost any loss woud make its equity negative. So let us look at that by going to the next financial year.
Balance sheet after suffering a loss which wipes all equity
Assets
(Billions)
Liabilities
(Billions)
NDA
Currency
4
HTM
58
AFS
21
Government
40
DA
1
Bank Reserves
10
Policy Securities
12
Assets
(Billions)
Equity
(Billions)
Capital
2
Loss
(3)
Total
80
Total
81
Its not that bad right. I mean when you look at it for what it is, everything seems completely fine, sure our central bank now has negative equity in this financial year and is also technically bankrupt but a central bank has the monopoly of money, it cannot go bankrupt, it can just print itself as much capital as needed, which is what it did and why balance sheets are not just never published regularly anymore. So what will generally happen by the next financial year is a good cooking session to recalibrate everything to get the assets up.
Balance sheet after cooking exercise to hide negative equity
Assets
(Billions)
Liabilities
(Billions)
NDA
Currency
4
HTM
60
AFS
23
Government
10
DA
1
Bank Reserves
10
Policy Securities
12
Other Liabilities
46
Assets
(Billions)
Equity
(Billions)
Capital
2
Reserves
0
Total
84
Total
84
That’s it, ni vu ni connu, everything is fine, or is it? Let us go back for one second. While our assets side and our liabilities side technically match. If we mark-them-to-market would its value increase or decrease? Are there unrealized profits or unrealized losses awaiting in the near future? There are vast unrealised losses in the hold to maturity book of our Kingdom. Not just because we overvalued these assets. More so because these assets are of a bigger duration profile and are thus very sensitive to changes in interest rates. Small changes in interest rates can cause big swings in valuations. We got the biggest interest rate swing in practically the last 20 years in the last two years considering interest rates jumped from 0% to 5.5% in the United States. That makes for a lot of unrealised losses. Again, that is why SVB was also caught with its pants down. The domestic MIC assets suffers from the same problem because the bonds it subscribed to were at very unfovarable terms giving us yet again a big hole in the balance sheet if it were marked-to-market. So let me be as clear as can be. The lying, it is everywhere in this Kingdom you live in. In planting drugs, in fake allegations, in fake reasonable suspicion arrests, in fake statistics, in fake everything, and that includes the fake position of our central bank and of our Kingdom’s Net Foreign Assets position. Our Net Foreign Assets position is shrinking obviously. Because we do not have a lot of these so-called assets if we mark them to market. Our Net Foreign Assets position has only ever been in this place once before in the 1980’s. That is why we have foreign currency problems. Unfortunately, macroeconomics is deterministic and the cause of the foreign currency problems is the same as the one in the 1980’s, a dramatic drop in our NFA if we were to mark them to market. Meaning there are a lot of unrealised losses, that our King’s bank is sitting on. Just so you get a visual idea, I’ll show you the transition in the 1980’s where we got saved by taiwan and hong-kong manufacturing coming in for textiles because of the Multi Fibre Agreement. There is nothing this time. We are on our own. No one is coming to save us from our incompetence. Update on 7th November. Maybe Diego saves the day? A revoir.
So, is that it? I wish it was, but you have to realise that when a country goes bust, there is only one way to get out of that problem, it is to have productivity. We have been living on an overvalued currency supported by massive inflows of foreign currently in the global business sector for 10 years, not on productivity. We have not had that for a while now. We do not even have the adequate labor force today. We are not progressing, do not fool yourself. I just showed you that number earlier. What we have been doing is solve problems temporarily but it always snowballs into another problem. Take the Foreign currency problem, there is a very hardcore financial repression established in our Kingdom today, because if you go to change your rupees into dollars because inflation has been so high for the past four years, that is it. Government crumbles. We cannot have that, so you have to force a dictatorship where you have to even go as far as intimidate people, to discourage them from doing what is best for them as Russia did initially when it went to war with Ukraine. We are not allowed, we are slaves, and that is to be our destiny, that is final. Our King has decided. Only his cronies gets access to this country’s foreign currency to protect their wealth. There are other problems, like the money that the central bank printed. It printed a lot of it. But in 2022 when US rates started increasing, it had to follow it, and raise rates because not following it would cause capital flight, which happened nevertheless, but more would have happened. The problem is it has printed way too much money. You do not realise it, but the central bank prints a lot of money these days to just do monetary policy because it has negative equity. It was never properly recapitalised because government itself is bust and does not have the capital (savings). To be able to raise interest rates, you have to use demand and supply mechanics. You have to decrease the amount of money in the banking system, but guess what? Their stupidity has become too costly. Just for June 2023, the cost for only the excess printed money, was as follows
Show the code
seven_day_cost = (0.045*363510)/12overnight_deposits = (0.035*104095)/12total_interest_excess_money = seven_day_cost + overnight_depositsprint(total_interest_excess_money,'additional million rupees to print per month i.e 1.666 Billion Rupees')
1666.7729166666666 additional million rupees to print per month i.e 1.666 Billion Rupees
Bear in mind, that does not include all the other already existing monetary policy instruments. They have to print money for that too to pay their interest or principals if they do not reroll them. In the end, they could not handle it, the amount of interest payments was snowballing because interest compounds and is an exponential thing that can quickly get out of control. They would have had to sell dollars to remove it from circulation, dollars we do not have. So they just stopped completely. To hell with monetary policy. Do you understand, the hard and cold fact is that the destiny of the rupee is to depreciate in the short run more and more and more because not only are we not productive, we have created a complete shit show with our national currency. Everybody’s property. We are adding too much extra money in circulation when doing monetary policy for the monetary politicy itself to ever work. Deterministically thus, we cannot have low inflation anymore or a stable currency. We cannot do monetary policy correctly and have not been doing it correctly for a while. We have taken a lot of foreign debt because the bank’s Hold to Maturity book is untouchable because of its unrealised losses that one would shudder to even look at. We will need to buy foreign currency at some point in the future to pay those loans back and to do that we will devaluate the rupee through our central bank buying a lot of dollars to pay those loans back. That is not everything, the penultimate disrespect is that, whilst the key rate is being kept at 4.50% so that banks can rip you off, on your variable interest rate loans, the Kingdom of Mauritius has already loosened monetary policy since July 2023. It has stopped issuing 7-day t-bills at 4.50% because it cannot afford to pay the interest. It’s too much for your Kingdom, given it is already bankrupt. But hey, it’s okay to let banks eat away at your salary and keep the key rate at 4.50% because such is our destiny buddy. All of this is our destiny. People like to wonder why young and talented people are leaving this country. It is because they know, and they have acknowledged reality as it is and left because there was no future here. They knew what their fate was. We are all the ultimate suckers in all of this because ironically in the biggest twist of fate, our Kingdom today is the one running a Ponzi scheme. It is removing money from one place to pay someone else whilst not paying someone else. Somebody’s NPV will need to take a big hit in the end. Guess who is not getting paid fairly. It is us, the peasants, the ultimate suckers of the Kingdom of Mauritius because such is our fate. We will foot the invisible bill of incompetence as we have every year for 56 years.
Footnotes
Read this to understand how lots of countries practice financial repression↩︎
Being insolvent means, not having enough assets to cover all your liabilities↩︎