09/19/2015 - BCA Research Chief Economist Martin Barnes: “Financial Repression is Here to Stay”
BCA Research’s Chief Economist Martin Barnes sees financial repression as “here to stay” for the long-term, given the challenges of low economic growth & high debt globally .. Barnes has written a special report to explain why debt burdens are moe likely to rise than fall over the short & long run given demogaphic trends & the low odds of another economic boom .. BCA Research: “If governments cannot easily bring debt ratios down to more sustainable levels, then the obvious solution is to make high debt levels easier to live with. This can be done be keeping real borrowing costs down and by regulatory pressures that encourage financial institutions to hold more government securities. In other words, financial repression is the inevitable result of a world of low growth and stubbornly high debt.Martin argues that central banks are not overt supporters of financial repression, but they certainly are enablers because they have no other options other than to keep rates depressed if they cannot meet their growth and/or inflation targets. A world of financial repression is an uncomfortable world for investors as it implies continued distortions in asset prices, and it is bound to breed excesses that ultimately will threaten financial stability.”
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
09/19/2015 - Beware Of Digital Assets Like Brokerage Accounts and 401Ks Jim Rickards Prefers: Silver, Gold, Fine Art, Rare Stamps, Cash, Other Physical Stores Of Value, Private Equity
Jim Rickards shares the key points & themes of his conversation with U.S. 4-Star General Michael Hayden who is the only person to have been director of both the National Security Agency & the Central Intelligence Agency .. the discussion is on financial warfare & where it is happening today .. thoughts on the financial warfare between the U.S. & Russia & other nations .. “With the U.S. putting financial pressure on Iran, Russia, and China, wasn’t it likely that these countries would create their own payments systems, develop their own banks and reserve currencies, and turn their back on the U.S. dollar system entirely? If Russia, Iran, China, Turkey and others no longer relied on U.S. dollars, then control of the dollar system would lose its potency as a weapon.” .. for investors, the implications are to invest in hard assets like silver, gold, fine art, rare stamps, cash & other physical stores of value – in addition to consider investing in venture capital & start-up companies where the ownership is in the form of a written contract – not a digital account .. “My conversation with General Hayden reinforced my already strong view that financial warfare is here and digital assets such as brokerage accounts and 401(k)s are in the line of fire.” .. financial warfare is a form of financial repression.
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
09/19/2015 - The Risks Of Crossing Borders With Gold & Silver Coins
Doug Casey shares some recent experiences on border crossings while carrying gold & silver coins . “What really got my attention was a few weeks later when I was leaving Mauritania, one of the world’s more backward countries. Here, I was also questioned about the silver coins. A supervisor was again called over and asked me whether I had any gold coins. Clearly, something was up .. I haven’t seen any official statements about the movement of gold coins, but it seems probable that governments are spreading word to their minions.” .. Casey suggests this is part of the war on cash .. Casey says it is all about capital controls & financial repression .. “So what’s next? I expect, as the subtle war on both cash and the transfer of capital across borders gains momentum, that gold coins are going to become the next focus of attention.”
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
09/19/2015 - Financial Repression Results In Mismanagement Of The Economy
Free market economist Richard Ebeling explains how government policies & central banks actions have resulted in mismanagement of the economy & the financial system .. this has resulted in all kinds of price & market distortions & unintended consequences (financial repression) .. “A variety of key interest rates, as a consequence, have, when adjusted for inflation, been in the negative range most of the time for seven years. Nominal and real interest rates, therefore, cannot be considered to be telling anything truthful about the actual availability of savings in the economy and its relationship to market-based profitability of potential investments. Interest rates manipulation has worked similar to a price control keeping the price of a good below its market-determined and clearing level. It has undermined the motives and abilities of some people to save on the supply-side, while distorting demand-side decision-making in terms of both the types and time-horizons of possible investments to undertake, since the real scarcity and cost of borrowing for capital formation has been impossible to realistically estimate and judge in a financial market without market-based interest rates. Markets have been distorted, investment patterns have been given wrong and excessive directions and labor and resources have been misdirected into various employments that will eventually be shown to be unsustainable.” .. Ebeing issues a call to action for monetary freedom & sound money to return .. “A hundred years of central banking in the United States since the establishment of the Federal Reserve System in 1913 has equally demonstrated the inability of monetary central planners to successfully direct the financial and banking affairs of the nation through the tools of monopoly control over the quantity of money and the resulting powerful influence on money’s value and the interest rates at which savers and borrowers interact. It is time for a radical denationalization of money, a privatization of the monetary and banking system through a separation of government from money and all forms of financial intermediation. That is the pathway to ending the cycles of booms and busts, and creating the market-based framework for sustainable economic growth. It is time for monetary freedom to replace the out-of-date belief in monetary central planning.”
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
09/19/2015 - Dr. Marc Faber: Governments Pay Less On Interest Now Even Though Their Debt Levels Are 3x Higher
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
09/19/2015 - Financial Repression Results From Repressed Interest Rates Set By Unelected Bureaucrats
Mises Institute posted commentary on the Federal Reserve’s decision to hold interest rates .. emphasizes how crazy the situation is today with the decision on the financial system’s most important metric – the Fed Funds rate, upon which so many prices of financial & economic assets depend – being made by a bunch of unelected, unaccountable, anti-market bureaucrats whose identities are completely unknown to virtually all Americans” .. the “elites” of the Federal Reserve“determine the cost of borrowing money across whole economies, we might call that price fixing .. But we live in an irrational world, where the judgments of real economic actors with skin in the game are thwarted by omniscient bureaucrats who openly seek to distort the price of money.” .. quotes Ludwig von Mises on how monetary interventions cannot create prosperity: “Attempts to carry out economic reforms from the monetary side can never amount to anything but an artificial stimulation of economic activity by an expansion of the circulation, and this, as must constantly be emphasized, must necessarily lead to crises and depression. Recurring economic crises are nothing but the consequence of attempts, despite all the teachings of experience and all the warnings of the economists, to stimulate economic activity by means of additional credit.”
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
09/18/2015 - Martin Barnes – Why Financial Repression is Here to Stay!
Special Guest: Martin Barnes – Chief Economist, BCA Research
FRA Co-Founder Gordon T. Long sits with BCA Research Chief Economist, Martin Barnes, a highly decorated and well renowned economist of 40+ years to talk Financial Repression and Barnes most recent work, Low Growth and High Debt: Financial Repression is Here to Stay.
FINANCIAL REPRESSION
Barnes defines Financial Repression as,
“An environment where interest rates are kept below levels which most people would consider being normal.”
In a recent publication, Low Growth and High Debt: Financial Repression is Here to Stay, Barnes focused on the problems of continued high debt levels and argues Financial Repression as a legitimate solution to the global debt crisis.
“If you can’t easily get your debt burdens down, then at a minimum you have to make the debt easier to live with, and the only way you can make your debt easier to live with is through Financial Repression. In other words, financial repression is the inevitable result of a world with low growth and stubbornly high debt.”
CONSEQUENCES OF LOW INTEREST RATES
“If money is free, very clever people at some point are going to do stupid things with it. There is no question that low interest rates will encourage some misbehaviour, and speculation. However it is hard to make the claim that today’s interest rates are low enough to be causing economic problems.”
Despite already low interest rates, economic growth around the world has been relatively low. Barnes states, “Economies should be booming with current interest rates but they’re not, we are living in a world that I would argue needs lower interest rates.”
“The by-product is financial distortion which has powerful implications for certain groups of people such as people trying to live off of fixed incomes. But you can’t push interest rates up to protect the interest of those people if the global economy is screaming for even lower rates. We cannot have a level of interest rates that will have everyone happy.”
THE PENSION FUND DILEMMA
A major mistake with the development of pension funds is that governments did not increase the pension age with the increase life expectancy.
“In a world of low returns, and people living much longer, the promises that were made a long time ago can no longer be kept. Everyone needs to understand that at some point those promises have to change, either by raising retirement age or increasing contribution rates. The logic behind these pensions is unsustainable and therefore it must change.”
SITUATION IN CANADA
In the midst of falling commodity prices, devalued currency and the housing market bubble, Barnes states the Canadian economic situation
“…is not disastrous; just like so many other economies, we are stuck in low growth. Exports are battling against moderate global growth and world trade. The big drop in the Canadian dollar has not lead to a big pick up in exports as we would have hoped. We are very tightly linked with the US economy and they are slowly growing so that is a positive.”
“Housing by every standard is incredibly overdone, especially in Toronto and Vancouver, it’s hard to get away from the fact that house prices are extraordinarily high here and it will likely erode.”
“China is moving away from its commodity oriented growth to a more service oriented model. The world is moving away from its commodity dependence which is not great for Canada, but we’ll adjust to that.”
Check out his interview with Gordon T Long which covers this and much more.
Abstract written by Karan Singh
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
09/11/2015 - David Berson – The Fed’s Plan for Interest Rates
Special Guest: David Berson – Senior Vice President & Chief Economist, Nationwide Mutual
David Berson is the senior vice president of Nationwide Mutual. Before now, he has worked as a College professor, at the Fed and for 20 years he was the chief economist at Sallie Mae. He has also worked at Nationwide Mutual insurance for the past three and a half years.
To David depending on where you are in the financial system financial repression will mean different things to you. According to him,
“Financial repression is holding interest rates below the level where they would naturally go.”
He explains that there are two sides to holding down the interest rate, a positive and a negative side. The positive with reducing the interest rate and applying quantitative easing include the addition of liquidity to the economy. According to him, most of the models used by macroeconomists indicate that monetary expansion helps the economy a bit at first but only a period of time. David says the expansion policy helped boost the economy out of recession and is responsible for the modest growth we see now. But the downside to it all is that keeping rates lower than it should naturally be results in savers being hurt due to the extremely low interest rates. At the same time borrowers are at an advantage. It also makes it difficult for investors to have a reasonable return. David agrees that low interest rates push investors to riskier assets but also insists that it is one of the points of having an expansionary monetary policy. He further reiterates that the upside to the artificial reduction in rates is the increased liquidity, which moves the economy a bit upwards.
“They need to concentrate on what’s happening in the domestic economy, they are the US central bank, they are not the central bank of emerging market countries even if those countries are greatly affected by what we do”
According to David, what’s happening in terms of the fall in commodity prices is not directly as a result of what the Fed does. He believes it is as a direct result of the rapid growth in china’s economy as they move to become an industrialized economy. He explains that the primary force driving the fall of commodity prices is the slowing down of the Chinese economy that is occurring now.
On what the Fed will do, David thinks the Fed will tighten this September although he also mentions that with the recent market volatility, the chances of that happening is less than 50%. He believes the Fed should tighten this September as he believes that such an action will help the economy.
On the disappointing recovery of the economy, David explains that there is an excess of government oversight on the economy, which has further contributed to the slowing down of the economy. If you look at what he calls the core GDP, which includes private sales and private purchases minus volatile inventory, trade and government, he is convinced that growth has picked up better than the overall GDP suggests and much closer to historical averages.
“One of the reasons why economic growth has been weaker in this expansion than others is a lack of government spending now I think that in the short-term negative in the long run I think a move in resources from the government sector to the private sector is positive but it takes a while for that to manifest itself in stronger overall GDP growth”.
Check out his interview with Gordon T Long which covers this and much more.
Abstract written by Chukwuma Uwaga – chuwaga@gmail.com
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
09/08/2015 - James Bianco – The Fed’s Plan for Interest Rates
Special Guest: James Bianco – President, Bianco Research LLC
Bianco research started in 1998 and is affiliated with Arbor research and training. It is an independent research company with James Bianco as its president. Bianco research specializes in macro, fixed income and equity research.
James views financial repression in light of what Ben Bernake said in his November 12 op-ed in the Washington post:
”the purpose of QE2 is the fed buys bonds, force down interest rates, that would make them relatively unattractive for most bond investors, seeking alternatives they would move further out the risk curve and they would not buy .They would push up those assets prices, create a wealth effect expecting a cycle in which the wealth effect creates economic growth to justify those higher prices”.
The forced down interest rate will not bode well for individuals who need certain rates of return to guarantee things like pension and retirement. You end up taking more risk by buying riskier assets which pushes up its price causing you to feel wealthier. He explains that when a government body in this case the CBN steps in and sets price at levels where they would not ordinarily go by themselves, they are repressing the price of interest rate, inflating the price of risk assets. They argue it is a greater good because of the wealth effect that comes from that.
James doesn’t think that the wealth effect occurs as a result of that. According to him, Milton Friedman in 1915 developed the permanent income hypothesis which states that if an asset goes up in price for example a house, you treat it as another form of permanent income. One the other hand, if your stock portfolio goes up, you perceive as temporary due to what you read in the paper.
“That’s why we obsess over the fed because we think all this stuff is temporary and we want to find out how temporary it is, because when the fed raises rates… I guess to mix my metaphors a little bit with the old warren buffets’ old line that we find out that we are swimming naked when the tide goes out”.
That’s why a rate hike is such a big deal in the financial markets. What will the Feds do?
“There are two things to keep in mind concerning what the feds will do. There’s the economic data and the market pricing of it”.
He says that based on the economic data, the fed has set up some parameters for itself and from a data dependent point of view, they have everything they need, but James believes that what will hold back the feds will be market instability. Currently, there is a great deal of volatility and uncertainty in the Chinese and emerging markets. He believes the instability in these markets will cause the feds will to maintain interest rates because they are hoping that things would calm down enough by Dec. He mentions that part of the reason for the unstable markets is due to the Feds insistence on raising rates.
EU
On his view of the EU, James Bianco has this to say:
“The history of the Europe is for the last thousand years is every generation they try to kill each other and the last one was in World War 2”.
Then they decided to get closer in order to prevent more wars. This led them to create the euro. According to him, the problem with the euro, is that you have 17 different countries in different cycles using the same currencies. He says that Draghi’s plan is to get interest rates to below zero and continue trying to stimulate the economy. He goes further to explain that the current refugee crisis that the EU is facing will have a huge negative impact on their economy. He doesn’t think Draghi’s plan will work because people think it’s temporal and as long as they think that, the permanent income hypothesis will take effect.
Check out his interview with Gordon T Long which covers this and much more.
Abstract written by Chukwuma Uwaga – chuwaga@gmail.com
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
09/05/2015 - Is Financial Repression Here to Stay?
The First Chairman of the UK’s Financial Services Authority Howard Davies writes an essay on financial repression .. “Maybe it is unreasonable for investors to expect positive rates on safe assets in the future. Perhaps we should expect to pay central banks and governments to keep our money safe, with positive returns offered only in return for some element of risk.” .. Davies worries about the consequences of financial repression on the economy .. he sees distortions from the prudential regulation adopted in reaction to the financial crisis – “The question for regulators is whether, in responding to the financial crisis, they have created perverse incentives that are working against a recovery in long-term private-sector investment.”
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
09/05/2015 - The Unintended Consequences of Zero Interest Rate Policy (ZIRP)
David Stockman* rails on the ZIRP policy by central bankers, in particular the Federal Reserve .. points out the St. Louis Fed has just confessed that ZIRP is not helping the main street economy .. “Self-evidently there is no main street emergency, but it is undeniable that ZIRP is the mother’s milk of Wall Street speculation. After all, the money market is where dealers and hedge fund gamblers finance themselves and put on their carry trades. By contrast, no businessman with productive inventories of raw materials, work-in-process or finished goods would be foolish enough to fund his working capital in the overnight markets .. Speculators in tradable financial assets, however, are thrilled to do that all day and night. They know that the shills who run the central bank’s printing press would never allow the money market to be parched for liquidity or allow a temporary surge in the overnight rate to clear the markets of rank speculation.” . this all causing rampant speculative gambling in the financial markets, not to mention distortions in the economy .. & of course financial market bubbles .. “That’s what ZIRP does—-it inflates financial bubbles .. At the end of the day, ZIRP is really not even a monetary policy. In fact, it constitutes a giant, capricious transfer of income and wealth by an agency of the state to borrowers and gamblers at the expense of savers and producers.” .. it’s the unintended consequences of financial repression.
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
09/02/2015 - Adam Andrzejewski Talks Financial Repression & Actions for Government Transparency
Special Guest: Adam Andrzejewski – Chairman, American Transparency and Editor, OpenTheBooks.com
ADAM ANDRZEJEWSKI DISCUSSES HIS PUBLIC INITIATIVES TO BRING MORE TRANSPARENCY OF GOVERNMENT SPENDING AT ALL LEVELS TO THE ELECTORATE.
FRA Co-Founder Gordon T. Long interviewed Adam Andrzejewski, the Chairman of American Transparency and Editor, OpenTheBooks.com. on his personal goals which prompted his launch of these public projects. Mr Andrzejewski’s American “Heratio Alger” story needs to be told.
In October 1997, Adam Andrzejewski founded an independent publishing business with his brother, Abram Andrzejewski. The publishing company, HomePages Directories, employs nearly 150 people and has an annual revenue of nearly $20 million. Adam Andrzejewski also started a grassroots initiative to enable local counties and school boards to post their check register online.
On March 1, 2009, Adam Andrzejewski announced his intent to run for the office of Governor of Illinois. Andrzejewski was one of four Republicans to file with the Illinois State Board of Elections to be placed on the ballot, submitting over 14,000 signatures. On 25 January 2010 Andrzejewski received an endorsement from Lech Wałęsa, former Polish President and Nobel Peace Prize Laureate. On 1 February 2010, Andrzejewski was endorsed by talk radio host Rush Limbaugh. On 2 February 2010 Andrzejewski was defeated by a significant margin in the Republican primary for Governor of Illinois.
His platform was based on government transparency. His campaign slogan was “Every Dime Online in Real Time.” Today as Chairman of American Transparency and Editor, OpenTheBooks.com. he is following through in a high profile and aggressive manner on his campaign platform and his personal goal to bring visibility of all levels of public government spending to the voting public.
Adam believes it is this visibility which will force accountability and responsibility from elected officials charged with the fiscal decisions of local, city, state and federal government offices.
“Open The Books” has become a national rallying cry for transparency in public spending. U.S. Senator Tom Coburn, sponsor of the 2006 “Google Your Government Act,” recognized Adam’s work,
“Open the Books is doing the work I envisioned when the Coburn-Obama bill became law. Their innovative app and other tools are putting sunlight through a magnifying glass.”
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
09/02/2015 - Central Bank Repression of Interest Rates is Causing Distortions and Bubbles
Mises posted essay by free market economist Dr. Thorsten Polleit .. explains how low central bank interest rates have been fueling asset price inflation .. emphasizes how the idea of central banks producing fake money out of thin air “induces a recurrence of boom and bust, bringing great misery for many people and businesses and eventually ruining the monetary and economic system” .. it’s all about the unintended consequences of financial repression .. “Central banks — in cooperation with commercial banks — create additional money through credit expansion, thereby artificially lowering the market interest rates to below the level that would prevail if there was no credit and money expansion ‘out of thin air.’ .. Such a boom will end in a bust if and when credit and money expansion dries up and interest rates go up .. To keep the credit induced boom going, more credit and more money, provided at ever lower interest rates, are required. Somehow central bankers around the world seem to know this economic insight, as their policies have been desperately trying to encourage additional bank lending and money creation.” .. Polleit advises a “normalization” of higher interest rates as soon as possible, warns it will be very painful for the economy in the short-run but beneficial in the long-run.
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
08/31/2015 - Chris Casey Talks Financial Repression & the Myth of Money Velocity
Special Guest: Chris Casey – Managing Director, WindRock Wealth Management
CHRIS CASEY DISCUSSES TYPES OF FINANCIAL REPRESSION, THE MYTH OF MONETARY VELOCITY, AND WHAT IT MEANS FOR INVESTORS.
FRA Co-Founder Gordon T. Long interviewed Chris Casey of Windrock Wealth Management on the monetary policy aspects of financial repression. Mr. Casey, an Austrian economist, is a frequent speaker and writer on macroeconomic topics and their related investment implications.
TYPES OF FINANCIAL REPRESSION
“Financial repression can best be described as government intervention in the financial markets which causes distortions not only within financial markets, but throughout the economy.”
According to Mr. Casey, financial repression can take direct and indirect forms. The most damaging form of indirect financial repression is the expansion of the money supply decreases interest rates. The artificially lowered interest rate structure causes widespread malinvestment within an economy.
All of this would perhaps be tolerable if monetary policy actually stimulated the economy, but Mr. Casey states that even Federal Reserve economists have recognized the ineffectiveness of the multiple quantitative easing programs.
THE MYTH OF MONETARY VELOCITY
Mainstream economists believe inflation is currently mitigated by today’s historically low monetary velocity (“the number of times one dollar is spent to buy goods and services per unit of time”), so the money supply can be expanded without the damaging effects of inflation. Chris Casey takes issue with this as well as the very concept of velocity.
“Velocity has no impact whatsoever, in fact it is a meaningless statistic.”
Worse, the theoretical construct from which the concept of velocity derives, the Fisher Equation of Exchange, is equally faulty. This equation attempts to explain the price level within an economy, but while it includes the supply of money, it ignores the demand for money which renders it useless. A useless theory in the wrong hands can create disastrous policy:
“The real danger is that by looking at velocity, by being focused on velocity, mainstream economists have been focusing on a false measure which creates false decisions which is going to have a very real impact on investors.”
WHAT SHOULD INVESTORS DO?
Where may the faulty policy decisions lead the U.S. economy? Chris Casey believes that “the endgame eventually will be a massive inflationary recession.” Gordon T. Long then asked Mr. Casey:
“What could you suggest to our listeners that they should be doing or thinking about to protect themselves in this environment?”
After recommending investors consider becoming fairly liquid, Chris Casey addressed how to profit from the coming economic environment:
“Build a portfolio of hard assets. You want to look at anything from precious metals to certain types of real estate such as rental residential real estate to farmland. You potentially want to look at foreign currencies to diversify from the U.S. dollar despite the dollar’s strength over the last year.”
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
08/31/2015 - Ramiro Larroy – Lessons in Financial Repression from Argentina
Special Guest: Ramiro Larroy – Partner & Director, Integras Capital
RAMIRO LARROY DISCUSSES HIS VIEWS ON WHAT LESSONS THE WORLD CAN LEARN FROM RGENTINA ABOUT INVESTING IN AN ERA OF FINANCIAL REPRESSION
FRA Co-Founder Gordon T. Long interviewed Ramiro Larroy, Partner & Director, Integras Capital in Buenos Aires, Argentina.
FINANCIAL REPRESSION
“Financial Repression globally is basically governments keeping interest rates below the rate of inflation as a way of taxing savers”
Ramiro suggests that in Argentina it is much more direct it its enactment by governments. “We had many experiences throughout the years where depositors in banks were ‘bailed-in’ and forced to take on debt as opposed to their deposits”
“IT IS A TAX! It was applied a little differently in Argentina than how it is being achieved by governments in developed countries.”
THE ARGENTINIAN EXPERIENCE
“When Argentina regained democracy in 1983 we had a government that from an economic standpoint did not do that well. They ran fiscal deficits and prices of exports were poor. By the end of this government in 1989 the country was heavily in debt with inflation. At the same time they paid high interest rates on deposits so people kept deposits in the bank. With these deposits the banks were able to buy government debt. In 1990 enacted (like at midnight!) a program where everyone that had deposits received a bond.” Literally, overnight with no recourse.
“Maybe people were able to earn a rate higher than inflation before, but all of a sudden they lost everything!” The government did not have the money to pay the money owed on the bonds it had issued. This was a way to reset and issue a new long term bond.” Argentinians have experience in their bank deposits being taken from them.
CHANGED INVESTMENT SENTIMENT
“These banking actions resulted in a huge change in the mind set of investors! It is now very difficult for a family to have a substantial part of their assets to be held locally or exclusively in the banking sector. Though rates may be ‘ok’ in the banks, people are not comfortable with the risks they are taking! Pretty well everyone has developed OTHER WAYS OF STORING WEALTH, from Real Estate, to buying Gold to buying physical US Dollars.”
“The more wealthy individuals and families have their wealth outside of Argentina as a way of protecting those assets. It is not about higher returns, but rather not wanting to lose the wealth.”
STORE OF VALUE STRATEGIES
“Store of Value Strategies are so prevalent that on this day we are talking, in the morning paper of one of the largest newspapers in Argentina, the major story is “8 Strategies Not to Lose Your Wealth in the Upcoming Depreciation! Need I say more!”
.. there are many lessons to be learned in this broad 35 minute interview discussion. Maybe the most important is that Argentina is 15-20 years ahead in regard to Financial Repression investor strategies. Government actions are very predictable when debt becomes too large for officials to handle.
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
Special Guest: Danielle DiMartino Booth – Former Federal Reserve Advisor, Chief Market Strategist, The Lisco Report
Having done lots of fishing this summer at Camp Kotok in northern Maine, Danielle DiMartino Booth is here interviewed by FRA Co-Founder Gordon T Long. Danielle is a former Dallas Federal Reserve Bank Advisor and now the Chief Market Strategist of The Liscio Report. She takes an Austrian School of Economics viewpoint on economic and financial matters.
Danielle emphasizes how she understands financial repression “in her bones” because she worked in “The Financial Repression Factory”, referring to the Federal Reserve. She understands the level of malinvestment, mispricing and lack of price discovery as the unintended consequences of repressive and obfuscating monetary policies of central banks. She thinks the Federal Reserve “does not have a deep enough appreciation of malinvestment .. as if Ludwig von Mises never walked the planet.”
She is angered by the considerable level of savings which has been foregone thanks to the quantitative easing (QE) policies of the Federal Reserve. Gone are the days of retiring on a Certificate of Deposit paying a decent level of interest income, due to the virtually 0% interest rates.
Danielle says there must be a renewed emphasis on education and innovation in America for it create jobs and jobs that are higher-paying generally than is currently the case.
Check out her recent speech – subscribe to our Mailing and Alert System and we will email you the PDF or view the Scribd below:
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
08/25/2015 - Peter Schiff Talks Gold Backed Debit Cards
Special Guest: Peter Schiff – CEO & Chief Global Strategist, Euro Pacific Capital Inc.
PETER SCHIFF TALKS FINANCIAL REPRESSION, CRYPTOCURRENCIES AND MORE.
Continuing with our series on financial repression, today we have Peter Schiff here with us who is being interviewed by FRA’s Gordon T long. Peter Schiff in his own words has been in the industry his whole life. He is also one of the few people to predict the financial crisis and was vocal about it in 2008.
FINANCIAL REPRESSION.
According to Peter one of the ways in which the government represses its citizens financially is through the banking system. He talks about the lack of privacy that arises from the opening of a bank account.
“In America today, if you have a bank account you have no privacy anymore. Your banker is basically an unpaid spy working for the government trying to monitor your activities for anything suspicious so they can turn you in to the government!”
Other ways include inflation, which erodes the value of one’s assets over time and government taxation in its many forms.
BAIL-INS AND CASHLESS SOCIETY.
“Bail-ins are a function of government deposit schemes which really don’t work!”.
He goes on further to explain that the reason they don’t work is due to the safety nets which these schemes provide. A situation is created where the banks “know that the depositors couldn’t care less how risky the bank is”. He alternatively suggests that market forces be allowed to reign in the banks so that banks compete on the basis of how much risk they can mitigate.
“People are looking for an alternative to the fiat currency created by governments”.
He mentions is one of the basis on which bitcoin was formed, although he doesn’t believe in its longevity going as far as likening it to a Ponzi scheme. The flaw in bitcoin according to peter Schiff is its lack of intrinsic value, unlike gold.
EURO PACIFIC BANK
“How do I spend my gold?”
Peter Schiff asserts this is a problem faced by consumers around the world and his bank Euro Pacific provides a solution to this problem. Customers are provided with gold and silver backed accounts with which they can access their gold 24/7. This works by using a 2-step process in which the customers have to open their account and sell off gold before they can swipe their card. Ultimately, he plans on streamlining this 2-step process into a 1-step process. This will work by converting gold in real time at the market value when customers swipe their debit cards.
Peter Schiff mentions how the real benefit from this system will be the ability of customers to save their gold since it holds on to its value and spend their fiat currencies. He goes on to compare his system and that of bitgold saying that the concept of giving out free gold which bitgold uses is not a viable business plan.
Check out his interview with Gordon T Long which covers much more of this.
Abstract written by Chukwuma Uwaga – chuwaga@gmail.com
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
08/22/2015 - The Unintended Consequences of Financial Repression: “The Impossibility of Meeting Return Targets”
Greenwich Associates conducted a study on German institutions .. some quotes from the study:
“The low interest rate environment makes it impossible to meet return targets. We have not yet found a solution.” — German Public Pension Fund.
“Low interest rates are a problem. As a reaction, we have globalized our investments and invested in higher risk asset classes.” — German Foundation
“Primary challenge is the low interest rates. The only chance to avoid this is to do things you didn’t do before.” — German Insurer.
For many institutions in Germany, “doing things they didn’t do before” means investing significant amounts of assets in something other than domestic & government bonds.
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
08/22/2015 - The Unseen Consequences of Zero Interest Rate Policy
Incrementum’s Ronald-Peter Stöferle explains how central banks with a zero interest rate policy (ZIRP) in place are creating unintenddd consequences & associated adverse risks to investors & retirees .. it’s financial repression .. “With artificial stimulus like ZIRP, we only end up with a situation in which governments, financial institutions, entrepreneurs, and consumers who should actually be declared insolvent all remain on artificial life support.” .. with the unintended consequences being:
1. Conservative investors by nature come under increasing pressure with respect to their investments & take on excessive risks in light of the prospect that interest rates will remain low in the long term. This leads to capital misallocation & the emergence of bubbles.
2. The sweet poison of low interest rates leads to massive asset price inflation (stocks, bonds, works of art, real estate).
3. Structurally too low interest rates in industrialized nations due to carry trades lead to the emergence of asset price bubbles & contagion effects in emerging markets.
4. Changes in human behavior patterns occur, due to continually declining purchasing power.
5. As a result of the structurally too low level of interest rates, a ‘culture of instant gratification’ is created, which is among other things characterized by the fact that consumption is financed with credit instead of savings.
6. The medium of exchange and unit of account function of money increases in importance, while its role as a store of value declines.
7. Incentives for fiscal discipline decline.
8. Zombie banks are created: Low interest rates prevent the healthy process of creative destruction. 9. Banks are enabled to roll over potentially non-performing loans practically indefinitely & can thus lower their write-off requirements.
9. Newly created money is neither uniformly nor simultaneously distributed amongst the population
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
08/01/2015 - Financial Repression Will Intensify as Central Bank/Government Policy Options Become Limited
Economist Satyajit Das sees increasing methods of financial repression being employed by governments as policy options become limited .. Introduced in 1973 by economists Edward Shaw & Ronald McKinnon, the term refers to measures implemented by governments to channel savings & funds to finance the public sector, lower its borrowing costs & liquidate debt .. Das sees new taxes, means testing, user pay surcharges all coming .. “Entitlement liabilities, such as retirement benefits, will be managed by increasing the allowable minimum retirement age, reducing benefit levels, linking to actual contribution by individuals over their working life, and eliminating inflation indexation. Many of these policies will be packaged as socially and ethically progressive initiatives, belying the financial imperatives.” .. points out in a 2013 study, the McKinsey Global Institute found that between 2007 & 2012, interest rate & quantitative easing (QE) policies resulted in a net transfer to governments in the United States, Britain & the eurozone of $1.6 trillion (£1.03 trillion), through reduced debt-service costs & increased central bank profits – “The losses were borne by households, pension funds, insurers and foreign investors. Households in these countries together lost $630bn in net interest income, with the major losses being borne by older households with significant interest-bearing assets. Non-financial corporations in these countries also benefited by $710bn through lower debt service costs.” .. Das also sees deliberate devaluation as another financial repression mechanism .. regulations are another mechanism: “Governments can legislate minimum mandatory holdings of government securities for banks, pension funds and insurance companies. New liquidity regulations already require increased holdings of government bonds by banks and insurers.” .. wealth confiscation is yet another mechanism – seizing savings or pension fund assets like in 2013 when Spain drew €5bn (£3.5bn) from the state’s Social Security Reserve Fund, designed to guarantee pension payments in times of hardship .. nationalizations are yet another mechanism .. “Debt monetization and the resultant loss of purchasing power effectively represent a tax on holders of money and sovereign debt. They redistribute real resources from savers to borrowers and the issuer of the currency, resulting in diminution of wealth over time. This highlights the reliance on financial repression, explicitly seeking to reduce the value of savings. Ultimately, the policies being used to manage the crisis punish frugality and thrift, instead rewarding borrowing, profligacy, excess and waste.”
Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.
09/19/2015 - BCA Research Chief Economist Martin Barnes: “Financial Repression is Here to Stay”
