04/27/2017 - Macquarie’s Research Team: Financial Repression Is Here To Stay As Governments Run Out Of Options
“Today’s financial repression is set to last for decades (and possibly forever) as policymakers are seeking to keep government funding costs low .. – that’s according to a new report from Macquarie’s economics research team. Since the financial crisis, central banks around the world have embarked on an unprecedented monetary policy experiment. Interest rates have been pushed down to artificially low levels in an attempt to stimulate economic growth and stave off a deep financial depression. Unfortunately, while these policies have worked to some degree, they have also punished savers. This is the very definition of financial repression .. Macquarie argues that governments have made an implicit fiscal policy choice by pursuing this strategy .. Artificially low-interest rates have imposed a tax on savings while at the same time keeping funding costs low, allowing for more borrowing on favorable terms. With this being the case, the analysts argue that rather than signaling a global slump, low bond yields reflect a conscious policy choice to minimize public debt funding costs .. As Macquarie’s analysts point out, financial repression is a headwind to real GDP growth as it involves a transfer of wealth from savers to debtors (in this case the government). Japan is a real-life example of how ineffective this policy really is. Savers have responded to financial repression by increasing the household savings ratio, which has resulted in weekly consumption growth and anemic economic growth.”
