Skip to comments.IMF Paper: Debt-Ridden Western Nations May Resort to ‘Financial Repression’
Posted on 01/07/2014 4:18:43 AM PST by IbJensen
(CNSNews.com) The highest debt-to-GDP levels in 200 years could force advanced Western nations to adopt financial repression measures typically reserved for economically unstable debtor nations, including mass write-offs and a tax on savings, warns a working paper published last week by the International Monetary Fund (IMF).
According to Financial and Sovereign Debt Crises: Some Lessons Learned and Those Forgotten, a working paper written by two Harvard economists who used to work at the IMF, there are essentially five ways to reduce large debt-to-GDP ratios:
1. Economic growth;
2. Fiscal adjustment- austerity;
3 .Explicit default or restructuring;
4. Inflation surprise; and
5. A steady dose of financial repression accompanied by a steady dose of inflation."
The first on the list is relatively rare and the rest are difficult and unpopular, writes co-authors Carmen Reinhart and Kenneth Rogoff, IMFs former chief economist.
Total public debt in the U.S. reached 98.9 percent of GDP in the third quarter of 2013, according to the Federal Reserve Bank of St. Louis. The Congressional Budget Offices alternative scenario projects the debt to reach 190 percent of GDP by 2038.
CBO Extended Public Debt
Although financial repression is a form of taxation that, like any form of taxation, leads to distortions, Reinhart and Rogoff note that a mix of financial repression and inflation can be a particularly potent way of reducing domestic-currency debt.
They define financial repression as 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 government and banks.
Other forms of financial repression that can be used to reduce domestic debt include higher inflation, a tax on savings, and stuff[ing] debt into local pension funds and insurance companies, forcing them through regulation to accept far lower rates of return than they might otherwise demand.
Last April, the Cyprian parliament approved a deal that forced depositors to bear the brunt of a $23 billion bailout by the Euopean Union and the IMF. Large depositors in the Bank of Cyprus lost access to 90 percent of their funds, and a final deal negotiated in July forcibly converted 47.5 percent of savings over 100,000 euros into bank shares.
Americans who think such a thing could never happen here should think again.
A collective amnesia prevails in Western nations, the authors warn, and lessons from the historical track record .seem to have [been] collectively forgotten. There is little historical evidence that economically advanced countries that have racked up unsustainable levels of debt can escape the fate suffered by their less developed counterparts, the authors point out.
The claim is that advanced countries do not need to resort to the standard toolkit of emerging markets, including debt restructuring, and conversions, higher inflation, capital controls and other forms of financial repression, Reinhart and Rogoff state.
As we document, this claim is at odds with the historical track record of most advanced economies, where debt restructuring, financial repression, and a tolerance for higher inflation, or a combination of these were an integral part of the resolution of significant past debt overhangs.
They add that there is also scant evidence that the U.S. and its European allies can rely solely on economic growth and austerity measures to pull themselves out of their current debt crises.
Of course, if policymakers are fortunate, economic growth will provide a soft exit, reducing or eliminating the need for painful restructuring, repression, or inflation, Reinhart and Rogoff conclude. But the evidence on debt overhangs is not heartening. - See more at: http://cnsnews.com/news/article/barbara-hollingsworth/imf-paper-debt-ridden-western-nations-may-resort-financial#sthash.OPUfcAL4.dpuf
The Federal Reserve keeps lending money to the US Gov't, which continues to borrow so that they can spend it on wars and welfare, buying votes and on a plethora of idiotic schemes like Gorebal Warming!
Also to the American people, who are ignorant of how this all works.
See the Mises Institute for information, but it takes awhile to learn it. Also, G. Edward Griffin's book "The Creature From Jekyll Island," which is about the Federal Reserve (the masterminds who designed it met on Jekyll Island to plan it).
Don’t forget the payoffs to Goldman S*cks and other Wall Street cronies.
The Fed doesn’t buy U.S. debt directly. It pays its buddies on Wall Street to do it. There’s a reason why NYC is flooded with money chasing $100 million penthouses, etc. Think of the commissions paid on $75+ billion a month in purchases by the Fed.
If the public understood that the Fed was a private bank (not owned by the government) and how it was destroying the country, the lamp posts in Central Park would be filled with nooses and there would be a high demand for tar and feathers.
Yeah... bad things will happen should that ever come to fruition.
6. Muddle through
muddling and inflation will combine to produce some growth
Efforts to increase wages to induce inflation are not succeeding and screwing up the muddling at present
I think it's a powder keg just waiting to be touched off. It's obvious the Feds see it, too.
Monty, I’ll bet mostly on #5 (steady dose of financial repression accompanied by steadily inflation), with a little bit of #4 (inflation surprise).
ZIRP is financial repression.
Changing pension rules are financial repression.
Worldwide, “unified” taxation of American citizens is financial repression.
Trapping corporate funds earned overseas outside the US by levying outside repatriation taxes is financial repression.
Hey... this could be a long list.
Its not about finances, its about repression. Repression is and has always been the goal. Destroying the country's fiances has been the means.
Why do you think FEDGOV has been building up the DHS, TSA, NSA, Patriot Act, NDAA, militarized police state the past 25 years?
Yeah... bad things will happen should that ever come to fruition.
I think it’s a powder keg just waiting to be touched off. It’s obvious the Feds see it, too.
As I see it, it’s just another keg of powder in a whole heap of them... All with slow fuses burning. It’s just a matter of time before one of them goes off and the rest go BOOOooommmm one right after another.
email rec’d this a.m. Seems appropriate!!
This article, though aimed at a US audience, gives a scary insight into China’s growing economic power.
A Little Known Reality. June 8, 2013. Source: Michael Snyder, Guest Post
In future China will employ millions of American workers and dominate thousands of small communities all over the United States. Chinese acquisition of U.S. Businesses set a new all-time record last year, and it is on pace to shatter that record this year.
The Smithfield Foods acquisition is an example.
Smithfield Foods is the largest pork producer and processor in the world. It has facilities in 26 U.S. States and it employs tens of thousands of Americans. It directly owns 460 farms and has contracts with approximately 2,100 others. But now a Chinese company has bought it for $ 4.7 billion, and that means that the Chinese will now be the most important employer in dozens of rural communities all over America.
Thanks in part to our massively bloated trade deficit with China, the Chinese have trillions of dollars to spend. They are only just starting to exercise their economic muscle.
It is important to keep in mind that there is often not much of a difference between the Chinese government and Chinese corporations. In 2011, 43 percent of all profits in China were produced by companies where the Chinese government had a controlling interest in.
Last year a Chinese company spent $2.6 billion to purchase AMC entertainment one of the largest movie theater chains in the United States. Now that Chinese company controls more movie ticket sales than anyone else in the world.
But China is not just relying on acquisitions to expand its economic power. Economic beachheads are being established all over America. For example, Golden Dragon Precise Copper Tube Group, Inc. Recently broke ground on a $100 million plant in Thomasville, Alabama. Many of the residents of Thomasville, Alabama will be glad to have jobs, but it will also become yet another community that will now be heavily dependent on communist China.
And guess where else Chinese companies are putting down roots? Detroit. Chinese-owned companies are investing in American businesses and new vehicle technology, selling everything from seat belts to shock absorbers in retail stores, and hiring experienced engineers and designers in an effort to soak up the talent and expertise of domestic automakers and their suppliers. If you recently purchased an American-made vehicle, there is a really good chance that it has a number of Chinese parts in it. Industry analysts are hard-pressed to put a number on the Chinese suppliers operating in the United States. Where do you think a large percentage of GM cars are now manufactured - China
China seems particularly interested in acquiring energy resources in the United States. For example, China is actually mining for coal in the mountains of Tennessee. Guizhou Gouchuang Energy Holdings Group spent $616 million dollars to acquire Triple H Coal Co. In Jacksboro, Tennessee. At the time, that acquisition really didnt make much news, but now a group of conservatives in Tennessee is trying to stop the Chinese from blowing up their mountains and taking their coal.
And pretty soon China may want to build entire cities in the United States just like they have been doing in other countries. Right now China is actually building a city larger than Manhattan just outside Minsk, the capital of Belarus.
Are you starting to get the picture? China is on the rise. If you doubt this, just read the following:
1. When you total up all imports and exports, China is now the number one trading nation on the entire planet.
2. Overall, the U.S. has run a trade deficit with China over the past decade that comes to more than 2.3 trillion dollars.
3. China has more foreign currency reserves than anyone else on the planet.
4. China now has the largest new car market in the entire world.
5. China now produces more than twice as many automobiles as the United States does. After being bailed out by U.S. taxpayers, GM is involved in 11 joint ventures with Chinese companies.
6. China is the number one gold producer in the world.
7. The uniforms for the U.S. Olympic team were made in China.
8. 85% of all artificial Christmas trees the world over are made in China.
9. The new World Trade Center tower in New York is going to include glass imported from China.
10. China now consumes more energy than the United States does.
11. China is now in aggregate the leading manufacturer of goods in the entire world.
12. China uses more cement than the rest of the world combined.
13. China is now the number one producer of wind and solar power on the entire globe.
14. China produces 3 times as much coal and 11 times as much steel as the United States does.
15. China produces more than 90 percent of the global supply of rare earth elements.
16. China is now the number one supplier of components that are critical to the operation of any national defense system.
17. In published scientific research articles China is expected to become number one in the world very shortly.
And what we have seen so far may just be the tip of the iceberg.
One question for all: How are you going to explain this to your children and your grandchildren? Our government is a complete failure and the media plays and major role in the demise of this once great country.
Pass this on to your friends
For now, I will just leave you with one piece of advice - learn to speak Chinese. You are going to need it!
It would appear, Count, that the military is needed here to fight the evil, corrupted American socialist government.
Make no mistake my friends, this menacing government is deliberately building up its defenses against US openly in order to goad us into making a move against it. We are in such dire straits that killing off the self-replicating Muslims in foreign lands isn’t as important as dealing with the crisis here.
Our lousy, stinking Congress and our corrupted system of courts is complicit in this as they stand idly by and do nothing although, to their credit judges appointed by our idiot leftist presidents are very busy.
Madrid, in 1936, continues to come to mind.
Sodpoodle: post this as a separate article in order to draw more attention to it. Extremely important that as many as possible view this.
And now you know why the Federal government and certain state governments want gun control. They’re eyeing 401Ks and IRAs and drooling. They don’t want their victims to be able to shoot back.
People, what we need are trade tariffs.
Bring back US jobs.
I bet they’ll also want an “imputed tax” on the labor of stay-at-home mothers.
Not sure whether to post a thread. Michael Snyder has a blog here:
Would appreciate your input;)
The first on the list is relatively rare and the rest are difficult and unpopular,
All they have to do is cut government spending and regulation. But then they would be out of a job and power wouldn’t they?
That was for any secondary home not for one’s primary residence....but it was still a horrible deal!
I tried locating the article on another website but couldn’t find it. We’ll have to be satisfied to reading it here, copying it and sending it to our email lists.
I think we can prolly extrapolate #2 Fiscal Adjustment to mean confiscation of pensions and 40lk’s. We know its coming.
Actually, no, it was floated during the Hillary-care debacle to include primary residences, too. There was such backlash once word got out it never made it out of committee. Boortz was all over it at the time. I remember it quite well. I had just bought my second house.
Perhaps I’m remembering them as settling on just secondary housing because of the backlash of which you speak!