Skip to comments.Protecting Against 'Financial Repression'
Posted on 05/21/2011 11:17:28 AM PDT by DeaconBenjamin
Financial repression is making a comeback. Bill Gross dedicated his May investment letter to financial repression, and an article by the FT's Gillian Tett described both policymakers and investors refamiliarizing themselves with its tenets.
What is "financial repression"? Below is an abridged definition from Reinhart & Rogoff's This Time is Different:
Governments force residents to save in banks by giving them few, if any, other options. They then stuff [their] debt into the banks via reserve requirements and other devices. This allows the government to finance a part of its debt at a very low interest rate; financial repression thus constitutes a form of taxation. Governments frequently can and do make the financial repression tax even larger by maintaining interest rate caps while creating inflation.
The Era of Financial Repression
Reinhart and Sbrancia's updated definition of financial repression includes pension funds with banks in their list of domestic captives:
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 a tighter connection between government and banks.
Their key finding which has Bill Gross in a tizzy:
Financial repression is most successful liquidating debts when accompanied by steady inflation. Inflation need not take market participants entirely by surprise and need not be very high (by historic standards). Advanced economies' real interest rates were negative roughly ½ of the time during 1945-1980. For the US and Britain the annual liquidation of debt via negative real interest rates averaged 3 to 4 percent of GDP annually, or a 30-40% GDP debt reduction over a decade. For Australia and Italy, which recorded higher inflation rates, the liquidation effect was larger (around 5 percent).
(Excerpt) Read more at seekingalpha.com ...
Goods, land, ... financial instruments ... people ...
That’s right, I remember reading that.
It was last year, I believe.
It was a private pension for some kind of guild or union workers. They saw the writing on the wall, and re-invested some of their pension into gold.
That they were REQUIRED to lose money on that deal and MISSED the rise of at least $400 an oz, in dollar terms, is a travesty. Never mind futures earnings.
It was theft, plain and simple. Financial suicide.
It does seem that TPTB want to go back to the feudal days.
Controlling arrogant buzzards that they are.
You might also find this interesting.
It is an account by an American in Mexico when the peso devalued.
Then we'll just have to return the favor by accelerating them to 1793.
Summon Madame Guillotine.
Isn’t it interesting that whenever private companies are offered 401K or other plans, they never seem to have a metals component to their selection? I’ve been searching for one since 1998 (just before the dot-bust) and never seen one that had any such option. Stocks, bonds, even REITS, those are fine, but metals are just too ‘risky.’