08/30/2016 - FINANCIAL POST: “Financial repression, misinformation increasingly the principal tools of central banks”
Financial repression, misinformation increasingly the principal tools of central banks
SOURCE: FINANCIAL POST: MidasLetter | August 22, 2016
Wading through the muddle of the United States Federal Reserve Bank’s minutes from the last Federal Open Market Committee meeting released on Wednesday, August 18, 2016, is not light summer reading. The text is rife with windy, repetitious, looping jargon that requires reading and re-reading.
Financial repression, or the practice by governments and their agents of reducing government debt by reducing interest rates paid to savers and devaluing currency over longer terms essentially shifts the burden of repayment onto the backs of the public. First described by economists Carmen Reinhart et al in a paper entitled “The Liquidation of Government Debt“, financial repression is described thus: “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 government and banks.”
That, coupled with confusing and excessively verbose and conflicting media statements, serve to bamboozle the investor marketplace into a state of suspended animation, where bold moves are neutered and throttled capital velocity ensure becalmed markets.
The practice has taken on new and significant meaning for individual investors, since the advent of quantitative easing and “negatively yielding” government bonds, which are now seen as threats to overall financial stability. The proliferation of new capital means competition for assets in markets that are meant to drive prices higher, which massively distorts asset valuations overall.
In the modern context, evidence of collusion among the G7 countries in repressing financially their own captive domestic audiences is visible in the communications originated by government institutions and parroted by mainstream financial media outlets.
After collectively pumping US$150 billion into the world inventory of government-fabricated capital in the last quarter, it appears the mood has suddenly shifted, and a consensus arrived at seeking to assuage the concerns of investors in sovereign debt and associated derivatives who are increasingly worried about debasement and the spread of “negative yields.” (Their term for “investment fees.”)
A series of press releases and mainstream news articles last week was remarkable for the apparently coincidental shift in tone and accidental alignment on messaging.
The European Central Bank, for example, issued a communique stating that the Brexit “level of stress had been contained, with no evidence of disorderly price movements.” The bank further opined that “fiscal policy stance was expected to be neutral in 2017, after being slightly expansionary in 2016, and also highlighted the need for full and consistent implementation of the rules of the Stability and Growth Pact, both over time and across countries, in order to maintain confidence in the fiscal framework.”
Wading through the muddle of the United States Federal Reserve Bank’s minutes from the last Federal Open Market Committee meeting released on Wednesday, August 18, 2016, is not light summer reading. The text is rife with windy, repetitious, looping jargon that requires reading and re-reading to ascertain its intended meaning. One might go so far as to surmise that it’s designed not to be read.
A distillation of the intended meaning is thus akin to the interpretation of hieroglyphics or cave paintings from a lost civilization.
So it’s no surprise then that media sources stuck with the same limitations arrive at disparate conclusions as to what information is contained in the minutes.
The Wall Street Journal, for example, discerned the insinuation for a potential interest rate hike in the fall. “The Fed’s Wednesday release of minutes from its July 26-27 meeting suggested a rate increase is a possibility as early as September, but that the Fed won’t commit to moving until a stronger consensus can be reached about the outlook for growth, hiring and inflation.”
Bloomberg, meanwhile, concluded that January 2018 is the soonest that a rake hike is possible.
Confused? You’re supposed to be. How else to quietly liquidate the unprecedented massive government obligations into the public interest while pretending that all is well?
