Beware of ‘financial repression’
Beware of ‘financial repression’
Recently, an article by Daniel Amerman caught our attention. Titled Is There A “Back Door” Method For The Government To Pay Down The Federal Debt Using Private Savings?, it details the process known as financial repression, where sovereign debts are slowly paid off by syphoning private savings from an unaware populace.
In this week’s podcast, Chris discusses the mechanics of the process, as well as its probability, with Dan:
To understand financial repression, we have to understand that we’ve been there before. Many nations have gone through periods in the past where they’ve had very high levels of government debt. And there are four traditional ways of dealing with that.
One of them is austerity. Everyone understands that. You raise the tax rates. You lower the government spending. This is a painful choice. It can last for decades. And what do you think the voters think about that?
There is another option and this we can call this the Argentina option. And that’s defaulting on government debts. It’s radical. Everybody understands it. How do the voters feel about it?
There is a third option is rapidly destroying the value of currency. Creating high rates of inflation that very quickly wipe out the true value of a national debt. But that also wipes out the true value of everyone else’s savings and salaries and so forth. It is such an obvious process you can’t really hide it. So how do the voters feel about that?
Those first three – they all work. They’ve all been done before. But they’re all very painful and make the voters very angry.
Now there is a fourth way of doing this. There’s nothing controversial about its existence; it’s not the slightest bit controversial for professional economists or people who have studied economics extensively. It’s financial repression. And it works. It’s what the advanced western nations did after World War II. It was a process that took 25 to 30 years, depending on the country. The West went from an average debt as a percentage of national economy from over 90% to under 30%. So we know it works in practice.
To understand what this fourth alternative is where governments like to go is that there are no political repercussions. It’s actually just as painful for the population as a whole. You’ve got to get the money one way or another. But financial repression is, for most people, just complex enough that the average voter never gets it. And because they don’t get it, they’re paying the penalty, but they don’t realize it. And they don’t see anyone to blame. That’s really good if you want to stay in office.
The key is a concept called negative real interest rates. If the rate of inflation is higher than the interest payments you are taking in, savers are losing purchasing power every year. Remember, this is a zero sum game between the borrower and the saver — with the saver funding the borrower. Every dollar in purchasing power that the savers, which are you and I, are losing every year — that goes to the benefit of the borrower, which in this case is the Federal government.
Daniel Amerman
Understanding Financial Repression
Financial Repression and its devastating impact on retirement investors was the subject of a recent Bloomberg article, and it has also been previously covered by the Economist magazine, which included the following summary:
“… political leaders may have a strong incentive to pursue it (Financial Repression). Rapid growth seems out of the question for many struggling advanced economies, austerity and high inflation are extremely unpopular, and leaders are clearly reluctant to talk about major defaults. It would be very interesting if debt (rather than financial crisis or growing inequality) was the force that led to the return of the more managed economic world of the postwar period.”
The phrase “Financial Repression” was first coined by Shaw and McKinnon in works published in 1973, and it described the dominant financial model used by the world’s advanced economies between 1945 and somewhere between 1970 to 1980 (the specific duration varied by nation). While academic works have continued to be published over the years, the phrase fell into obscurity as financial systems liberalized on a global basis, and former comprehensive sets of national financial controls receded into history.
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Quantitative Easing is Hyper-inflating The Currency Supply
Neither the USFed nor their Wall Street partners ever refer to QE’s capital destruction effect, because it contradicts their stimulus argument and false message.
Theirs is pure propaganda in keeping with the urgent directive to save the banks that are too big to fail.
These are the financial crime centers of America. -PhD. Jim Willie
http://www.silverdoctors.com/jim-willie-shanghai-shock-to-shatter-the-gold-market/
The pattern of central bank covering the debt is clear. The lesson is that central banks can apply paper patches to the failed banks, and buy more time, then repeat the process on the next failed bank event. No limit to their bank patches seems to be in force. The banker cabal can continue endlessly since their patches are based on paper solutions, fiat paper money spew, and they control the paper output. They are the masters of the House of Paper.
The paper mache solutions can continue in a seemingly endless manner, but not in the Gold market.
The intervention and suppression in the Gold market is finite. It requires Gold bullion, the physical ingot bars, in order to execute the perpetuated interference and alteration to this financial niche market.
The manipulation is finite, and it is coming to an end.
When the Shanghai shock comes, all the Paper Gold structures will fall, all the FOREX derivatives will collapse, all the control rooms will go into panic mode.
[…]
Hidden was the biggest and most important to date, done in September 2008. The bailout was of Goldman Sachs, but made to look like a Lehman failure and AIG nationalization.
Under the USGovt aegis, the venerable GSax was given 100 cents per dollar on derivative payouts, was redeemed in full on mortgage assets, and generally was placed first in line for all window functions. It was the most clever bank bailout in history. The source of the derivative payouts was the usual funny money, where all trails lead to the USFed in its money creation. The good people of the United States talk about the favored 1% Elite, but they really have no idea who the bankers are, what they do, devices they use, controls they exert, or influence they peddle. If only they knew how Goldman and Citibank write Congressional legislation and tap markets for illicit tolls and skims. Their huge penalties and fines for criminal behavior are incorporated into their business models. Crime has a relatively small but growing part in its cost of doing business.
Royal Bank of Scotland was another giant bailout following a failure, or near failure. The UKGovt took a 81% stake in the failed financial institution, not quite buying lock stock and barrel in its many wrecked business segments. The bailout was worth 46 billion British Pounds, completed in 2008 and 2009. It is all gone, all squandered, good (phony) money after bad. The good people of Britain have complained about horrendous treatment by the bank ever since. The RBS bank remains predatory, but protected by the government.
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U.S. Government SECRETLY Preventing a Stock Market Collapse!
Posted 23 Oct 2014
U.S. Stocks Surge; Nasdaq Up 2.4%
All the Markets Need Is $200 Billion a Quarter From the Central Bankers
the Plunge Protection Team. Or call it the President’s Working Group on Financial Markets, the official name given to the group when it was formed by President Ronald Reagan after the market turbulence of 1989.
Executive Order 12631–Working Group on Financial Markets
Doomsday Book
McDonald’s Profit Down 30% On Sales Slump
Coca-Cola Profit Declines 14%, Future Growth Plan Fails To Impress
Sources:
http://online.wsj.com/articles/u-s-stock-futures-rise-1413894481
http://www.bloomberg.com/news/2014-10-21/how-markets-need-200-billion-each-quarter-from-central-bankers.html
http://nypost.com/2014/10/20/plunge-protection-behind-markets-sudden-recovery/
http://www.archives.gov/federal-register/codification/executive-order/12631.html
http://www.forbes.com/sites/laurengensler/2014/10/21/mcdonalds-profit-down-30-on-sales-slump/
http://www.forbes.com/sites/samanthasharf/2014/10/21/coca-cola-profit-declines-14-future-growth-plan-fails-to-impress/
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Michael Snyder: Deflation then Inflation Through the Roof
Posted 21 Oct 2014
What do you look out for as a warning sign of the next calamity? Michael Snyder of TheEconomicCollapseblog.com says, “When there is a financial crisis, all of a sudden, banks don’t want to lend. They don’t want to lend to each other, and they don’t want to lend to anyone else. Credit freezes up, and our financial system is based on debt and the flow of money from the banks lending it to the rest of us. I believe we will have a brief period of deflation before the response by the Federal Reserve and the federal government, where we are going to then have tremendous inflation through the roof.”
How can this be fixed? It can’t be fixed without killing the economy, as Snyder explains, “A lot of people say I hate the banks. Let the banks fail. This is kind of like a patient with a very advanced stage of cancer. That’s what our economy is like. We are so tied into these banks. If you try to kill the advanced cancer, you are probably going to kill the patient as well. If you try to kill the banks, our economy is going to die as well.”
Join Greg Hunter as he goes One-on-One with Michael Snyder, founder of TheEconomicCollapseblog.com
Egon von Greyerz: Reset Will Be Dramatic
Posted Oct 28, 2014
Egon von Greyerz, Founder of Matterhorn Asset Management, says, “You can’t have governments borrow more than ever and have interest rates at zero. You can only do that temporarily because you have governments printing money and artificially holding interest rates down. That will not last either. So, the reset will be dramatic. It won’t happen overnight, but there will be events that trigger short term pitfalls, but this is a long term thing.”
Printing money to support the stock market and the bond market will work for a while, but Greyerz warns, “The ammunition that they have will, of course, be so devalued that nobody will want it. So, any support they try to muster in the future will have no effect. This is why markets are going to be in a terrible state in the next few years. It will be all the bubbles that have been created over a very long period.”
Join Greg Hunter of USAWatchdog.com as he goes One-on-One with Egon von Greyerz, Founder of Matterhorn Asset Management.
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