Financial Repression


At midday I’m off to the pub.  While I’m still in the process of ‘recovery’ from a very nasty illness, I need to get out – if only to show off my ability with all this technology my son has thrown at me (iPad, iPhone) – and an internet ‘dongle thing’ supplied by my new mobile phone supplier. However: the following article from the Cobden Centre caught my attention: the complete article is called The Great Repression.

I have focused on the last part of the article which asks (and answers) the question —

So how precisely will governments go about stealing savers’ money?

The Dutch pensions regulator gave an indication of one possible wheeze back in February 2011 when it ordered the Stichting Pensioenfonds Vereenigde Glasfabrieken pension fund to sell its gold holdings (13% of the fund) on the premise that it was too risky. In an NBER paper last year, Carmen Reinhart and M. Belen Sbrancia pointed the way. As their abstract states,

Historically, periods of high indebtedness have been associated with a rising incidence of default or restructuring of public and private debts. A subtle type of debt restructuring takes the form of financial repression.

Financial repression includes directed lending to government by captive domestic audiences (such as pension funds), explicit or implicit caps on interest rates, regulation of cross-border capital movements, and (generally) a tighter connection between governments and banks. Low nominal interest rates help reduce debt servicing costs while a high incidence of negative real interest rates liquidates or erodes the real value of government debt. Thus, financial repression is most successful in liquidating debts when accompanied by a steady dose of inflation. National Bureau of Economic Research

I would also endorse what Charlie Booker said in The Guardian:

Banknotes aren’t worth the paper they’re printed on. If they were, they’d all have identical value. Money’s only worth what the City thinks it’s worth. Or, perhaps more accurately, hopes it’s worth. Coins should really be called “wish-discs” instead. That name alone would give a truer sense of their value than the speculative number embossed on them.

The entire economy relies on the suspension of disbelief. So does a fairy story, or an animated cartoon. This means that no matter how soberly the financial experts dress, no matter how dry their language, the economy they worship can only ever be as plausible as an episode of SpongeBob SquarePants. It’s certainly nowhere near as well thought-out and executed. The true value of money — or why you can’t fart a crashing plane back into the sky.

5 responses to “Financial Repression

  1. Pingback: Inflation! | Aasof’s Reflections

  2. Pingback: Plus ça change | Aasof’s Reflections

  3. Pingback: Seeking Keynes – The Treaty – peter_barnett - My Telegraph

  4. Pingback: Seeking Keynes – The Treaty « A Serious Look At Life

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Martin Widlake's Yet Another Oracle Blog

Oracle performance, Oracle statistics and VLDBs

The Land Is Ours

a Landrights campaign for Britain

The Bulletin

This site was created for members and friends of My Telegraph blog site, but anyone is welcome to comment, and thereafter apply to become an author.

TCWG Short Stories

Join our monthly competition and share story ideas...

The Real Economy

Blogs and stuff from Ed Conway

Public Law for Everyone

Professor Mark Elliott

Bleda

Am I my Brothers keeper?

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