12/04/2014 - Central Banks and Financial Repression
“Central banks would like to escalate their devastating war on savers by driving interest rates even deeper into negative nominal and real territory. But they are now stymied for two reasons .. In the case of their preferred route of driving ‘real’ interest rates more deeply into negative returns by cranking up consumer inflation, they are blocked by economic reality. Households are still buried in debt and can no longer borrow, spend and ratchet-up their balance sheet leverage ratios as they did in the 40 years preceding the financial crisis. Likewise, a deflationary global economy— drowning in the excess industrial capacity and malinvestments that have been generated by nearly two decades of worldwide financial repression—– keeps a tight lid on the price of consumer goods. So the tried and true route of inflating governments out of their debt obligations has been precluded .. At the same time, interest rates are already at the zero bound in nominal rate terms, meaning that only significantly negative nominal rates can further reduce the burden of public debt. However, even central bankers are smart enough to realize that if the monetary and fiscal authorities of the state go too far in imposing negative rates on bank deposits or in threatening to ‘bail-in’ depositors, they could incite a run on the bank.”
– David Stockman
LINK HERE TO THE SOURCE ARTICLE
