04/04/2015 - How Can and How Do Governments Address Their Debt Burdens? Paper by Carmen Reinhart & M. Belen Sbrancia
Article which summarizes the thoughts from Carmen Reinhart & M. Belen Sbrancia .. abstract from their original 2011 Paper: “Historically, periods of high indebtedness have been associated with a rising incidence of default or restructuring of public and private debts. 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 (generally) a tighter connection between government and banks…Inflation need not take market participants entirely by surprise and, in effect, it need not be very high (by historic standards)…We describe some of the regulatory measures and policy actions that characterized the heyday of the financial repression era.”.. This article emphasizes how actual events in the current marketplace suggest the U.S. & other high debt/GDP countries are using history as a guide to help them liquidate debt in a politically feasible manner .. Here are some simple examples of possible financial repression in the marketplace:
1. Heavy handed regulation & control of financial institutions is well underway (first step in facilitating financial repression). All of this regulation is being marketed as “for the public good.”
2. Governments are playing a larger & larger role in government bond markets .. It is no longer possible to look at a yield curve & believe it reflects market-priced risk.
3. Governments are pushing for more & more domestic debt ownership.
LINK HERE to get the IMF Paper
