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10/31/2014 - “Governments that engage in Financial Repression (channeling funds toward themselves to reduce their debt) hamper financial development”

72aafe44b7d4ec1fc60dac8272ff6fff.squareA generation of development economists owe Ronald McKinnon, who died earlier this month, a huge intellectual debt for his insight – introduced in his 1973 book Money and Capital in Economic Development

“that governments that engage in financial repression (channeling funds toward themselves to reduce their debt) hamper financial development”. Indeed, McKinnon provided the key to understanding why emerging economies’ financial sectors were underdeveloped.

At the end of his life, McKinnon was working on a related – also potentially groundbreaking – concept: a dollar-renminbi standard. In his view, such a system would alleviate the Financial Fepression and fragmentation that is undermining global financial stability and growth. The question is whether the powers that be – particularly in the United States, which has long benefited from the dollar’s global domination – would ever agree to such a cooperative system.

The notion that the dollar’s global dominance is contributing to Financial Repression represents a significant historical shift. AsMcKinnon pointed out, the dollar became a dominant international currency after World War II because it helped to reduce financial repression and fragmentation in Europe and Asia, where

  • High inflation,
  • Negative real interest rates, and
  • Excessive regulation prevailed.

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Being Used during an Era of:

  1. Global Fiat Currencies,
  2. A Weak Global Reserve Currency,
  3. Historic Sovereign Debt Levels

LINK HERE to the source article

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.

10/30/2014 - Markets Distorted by Rumsfeld-Knowns and Rumsfeld-Unknowns Financial Repression for the Benefit of the Government & Their Bank Partners is Winning

rumsfeld“The behavior of financial markets these days is frankly divorced from reality, with value-investing banished .. Markets have become distorted by Rumsfeld-knowns such as interest rate policy and ‘market guidance’, and Rumsfeld-unknowns such as undeclared market intervention by the authorities. On top of these distortions there is remote investing by computers programmed with algorithms and high-frequency traders, unable to make human value-assessments .. The reality is that there is intervention across a range of markets; but most of the mispricing is in the hands of private, not government investors .. We can fret about who is actually responsible for market distortions, instead we should ask who benefits:
Governments: in the past they have covered their debts through a process dubbed financial repression, when artificially low interest rates and bond yields were the principal mechanism whereby wealth is transferred from savers to the government. This process still goes on today.
Zero interest rate policy: lays the process bare, and turns savers into borrowers.
Investment and hedge funds: invest together with the banks which take our deposits & speculate on our behalf. They think that with a Yellen or Draghi ‘put’ underwriting markets a ten-year government bond with a two per cent yield is an attractive investment. In doing so they are transferring financial resources to governments in a variation on old-fashioned financial repression.”

– Alasdair Macleod

LINK HERE to the source article

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.

10/26/2014 - China’s Skewed Growth Has Caused Massive Pollution, Industrial Overcapacity, and Financial Repression

Project Syndicate essay explores the imbalanced economic growth model in China, skewed towards exports rather than domestic consumption, how this is causing low consumption, large external surpluses, industrial overcapacity, environmental degradation, government interventions like capital controls or financial repression .. “The bias toward manufacturing and export industries leads to a severe misallocation of capital. Less efficient industrial sectors have accumulated significant excess capacity, destabilizing the entire economy, while more productive, efficient sectors lack access to the resources they need. Restructuring the economy is perhaps the most urgent – and most difficult – challenge facing China’s leaders today. Given that the current distortions are interlinked, they may need to be addressed simultaneously. China’s gradualist approach may no longer work.”

LINK HERE to the source article

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.

10/25/2014 - Financial Repression Forces Investors to Do Things They Wouldn’t Naturally Do

Like Buy US Treasuries at a Minimal Rate from a Country with Exploding Debt & Reduced Abilities to Pay

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This happens when the Fed Manipulates a Market Bubble thereby Reducing Stock Yields because of higher stock Prices – Then removes liquidity (TAPER) which triggers a flight to PERCEIVED SAFETY.

PRESTO – US Debt gets cheaper due to FEAR

NOW YOU UNDERSTAND FINANCIAL REPRESSION AS YOU HOLD PAPER THAT IS UNPAYBALE AND INEXTINQUISABLE, YIELDING LESS THAN INFLATION!!!!

What is the Real Risk in

US Treasuries?

Who WILL BE Left Holding the Bag?

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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.

10/25/2014 - Grant Williams Talks Financial Repression

Special Guest: Grant Williams

 

Grant suggests that the dictionary defines repression as essentially about trying to repress true feelings. Financial Repression is the government’s attempt to steer behavior away from true investments and into those that assist the government to pay down its debts.

“The result is essentially outright theft by borrowers from savers. The pool of savings on earth is the last really untapped pool of capital that government has to go after”.

According to Grant the explosion in credit through removal from the Gold Standard, financial engineering and keeping interest rates low has left a differential between Credit Growth and GDP that has forced governments with no choice but to adopt Financial Repression policies. By debasing their currency and through inflation government create the most insidious type of wealth transfer that most people just don’t understand.

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.

10/24/2014 - Financial Repression Robs Private Risk Taking & Investment

The Stampede is only beginning, as government grows in size and use of regulations to direct money to support increasing government needs.

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IN THE LAND OF THE FREE

Collectivism Leads to Dependency which Leads to Servitude

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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.

10/24/2014 - Nick Barisheff Talks Financial Repression

Special Guest: Nick Barisheff – President & CEP, Bullion Management Group Inc.

 

Nick Barisheff suggests that to protect yourself from government Financial Repression policies, a diversified portfolio with a strategic allocation of 20% in precious metals is presently merited. The Precious Metals allocation should be diversified in physical holdings between gold, silver and platinum.

Nick argues that China is closer to 5000 tons of gold than the 1000-1700 currently reported by official sources. When this all becomes properly understood it will send shock waves through the system!

Barisheff believes China is acquiring physical Gold in its Sovereign Wealth Fund which doesn’t have to report it to anyone. The last time they did the Chinese Central Bank Gold Reserves went from 800 to 1600 tonnes.  They haven’t reported in five years. During this 5 years Nick argues the gold is coming from Leased Gold. There has been approximately 1500 tonnes per year in net leasing over the last 10 years.

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.

10/22/2014 - Financial Repression: Federal Reserve Fleecing Savers

fleecingIn a followup essay from his recent interview on financial repression, Chris Martenson* explains the heart of financial repression as an environment in which you cannot save money without paying a penalty .. emphasizes that central banks & governments are creating conditions of pervasive & unavoidable negative real interest rates which are causing a loss of purchasing power in savings .. “Negative real interest rates transfer money from every saver to every over-extended borrower. This is especially true with the government (largely because of its special revolving door relationship with the Fed, which both issues the money out of thin air and then buys government debt forcing rates into negative territory) .. It’s really that simple. The Fed has openly and actively suppressed rates — not to help the credit markets, as they claim, but to engineer a condition of Financial Repression. Because that’s what the government needs to stealthily take your wealth to pay down the prior debts it accumulated.” .. Martenson references the Carmen Reinhart paper we have frequently referenced also (see link below) & paraphrases the steps detailed for central banks & governments to implement:

Step 1: Governments get into trouble by borrowing too much.
Step 2: Rather than pay this down honestly via cutting spending (unpopular) or by defaulting (even more unpopular), the government conspires with the central bank to slowly liquidate the stack of obligations by forcing negative real interest rates on everyone.
Step2b: Hang on one second…it wouldn’t work if people could dodge the Financial Repression, so a ring fence has to be built out of capital controls and explicit rate caps on and across the whole spectrum of interest-bearing securities.
Step 3: Sit back and wait for everyone with savings to contribute their purchasing power to those who issued the debts.

Martenson explains how the Federal Reserve & Fed Chair Janet Yellen are implementing these steps.

LINK HERE to the source article

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.

10/21/2014 - Governments Employing Financial Repression To Help Them Stay In Business

Martin Armstrong sees a crash in stocks as causing bonds to go higher as investors rotate into bonds from a safe-haven perspective .. this allows the government to access more money to finance its profligate spending & debt .. “A crash in stocks sends even more money into the arms of government. This inflates their position assuming they really do not have to ever worry about budgets because the crazy public will always buy .. French auctions did not go well – We are starting to see the subtle shifts in selectivity among government bonds. This the crack in the facade .. The bubble is in government bonds. We need a sharp correction in stocks to set the stage for the future. Doing so, will send more money into bonds. The more money that concentrates in government debt the higher the likelihood of the bloodbath 3Q 2015 into 2020. This will wipe out institutions from banks to pension funds like never before.”

LINK HERE to the source article

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.

10/20/2014 - Financial Repression v 5 Natural Truths

The Macroprudential Policy of FINANCIAL REPRESSION is the embodiment of a program fighting these 5 natural truths:

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Many “in-the-know” have warned!

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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.

10/19/2014 - Beware of Financial Repression

Peak Prosperity interview of Daniel Amerman on financial repression, based on his recent essay which we posted – see link below.

Great insightful article on financial repression by Daniel Amerman .. questions how the U.S. federal government can pay down its enormous debt .. sees 4 primary options that the government can take:

1) Decades of austerity with higher taxes and lower government spending.

2) Defaulting on government debts.

3) Inflating away the value of the debt through rapidly slashing the value of the currency.

4) Using “Financial Repression”, a process that is complex enough that the average voter never understands how it works, thus allowing governments to use this potent but subtle method of taking vast sums of private wealth, year after year, decade after decade, with almost no political consequences.

The essay reminds readers the 4th option is the likely approach, points out the world took this approach in the 1940s through the 1970s to pay down government debt .. “Because of the sheer size of the problem – most of the population must be made to participate, year after year. Financial Repression therefore uses an assortment of carrots and sticks to ensure that investors have little choice but to participate – on a playing field that has been rigged against them as a matter of design – even if they are among the small minority who are aware of what is being done to them.”The essay covers 4 areas of financial repression:

1) Inflation (Shearing #1)

2) Negative Real Interest Rates (Shearing #2)

3) Funding By Financial Institutions (Fence #1).

4) Capital Controls (Fence #2). 

LINK HERE to part 1
LINK HERE to part 2

 

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.

10/18/2014 - Financial Repression Causing the Business Cycle to Fail

“Since WW2 economic theorists have posited that demand in the economy could be stimulated by a combination of deficit spending by the government and by suppressing interest rates .. The separation of demand from production was promoted by Keynes and interest rate management of the economy by monetarists, though there is considerable overlap between the two. Yet no progress in economic management has been achieved: instead we appear to be on the brink of a major economic dislocation .. Far from banishing the business cycle, it has become worse .. The final act of the business cycle is ending differently. The accumulated burden of debt has become too great for consumers and even governments themselves to bear. Financial reality is finally intervening, and consumption simply cannot grow as the Keynesians and monetarists intended. What was originally an economic problem, believed to be solvable by deficit spending and interest rate management has become a financial problem .. The truth of this statement appears to be finally dawning on bond and equity markets, with a rush into the safe haven offered by the former and an aversion to the risks in the latter, a process that having just started has a long way to go.”

– Alasdair Macleod

LINK HERE to the source article

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.

10/17/2014 - Financial Repression Punishes Savers While Rewarding Speculators and Debtors

2014-10-02_10-34-02Scotiabank’s Guy Haselmann thinks asset prices must adjust downward to meet new economic expectations for lower growth & inflation .. the problem is this recalibration is occurring quickly in an asset environment characterized by low liquidity – it is like the financial markets will overshoot to the downside .. “the process has just begun .. the unwind process has far to go” .. on quantitative easing & very low interest rates:

“The Fed’s policy of financial repression sends the wrong signal. It punishes savers, such as pensions and retirees, while rewarding speculators and debtors. It is like giving my son ice cream after he yells at his mother and punches his brother.

If the Fed is so worried about the economy that they have to keep rates low for a very long time, then how can a corporation have enough confidence to want to begin a capital investment project? . Many Fed policies have been, or have become, counter-productive .. Fed policies and financial asset prices have recently reached their practical limits.”

LINK HERE to the source article

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.

10/15/2014 - Financial Repression Causing Companies to Issue Cheap Debt to Buy Expensive Stock – Numerous Negative Adverse Consequences

FT essay below which makes the argument he has been making in the past few years: Given the Federal Reserve’s ultra-easy monetary policies, including near zero interest rate policy & quantitative easing (QE), companies have a tremendous incentive to issue cheap debt to buy expensive stock, diverting corporate cash from creating jobs & investment.

Forbes essay references the recent emphasis in economics & business on “shareholder value”, how this emphasis has resulted in unintended consequences, one of which is the simple share buybacks trend of recent years .. lists several results associated with this “shareholder value” creed:

Caused endemic short-termism
Generated combines of executives and shareholders
Fostered executive cronyism
Led to widespread stock price manipulation
Undermined organizations, communities and whole industries
Dispirited employees
Failed to renew human capital
Short-changed customers
Locked in obsolete management practices
Caused secular economic stagnation
Killed international competitiveness
Led to rampant income inequality
Caused an unhealthy concentration of economic power
Sparked successive economic crashes
Caused unhealthy concentration of economic power
Corrupted society itself

LINK HERE to the article

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.

10/15/2014 - Financial Repression Regulations A Mirror Image of the Warnings in Atlas Shrugged

Sick of the overbearing regulation, taxation, and entitlement mentality in society—in the book Atlas Shrugged, John Galt went to one entrepreneur after another to convince them that they just 10-16-14-FINANCIAL_REPRESSION-atlas-shrugged-book-coverdidn’t need to put up with it anymore.

They didn’t need to keep propping up a system that was trying to destroy them. Where’s the point in continuing to feed a parasitic system?

So one by one, these innovators and producers simply closed up shop, deciding to just “shrug” and abandon what they were providing thanklessly to the looters.

Today many companies are doing the same. They may not be abandoning their businesses altogether, but they are moving them out of the hands of the parasites by moving their tax bases abroad.

In Ayn Rand’s book, the Economic Planning Bureau dealt with this by legislating that no businesses could leave: “[a]ll the manufacturing establishments of the country, of any size and nature, were forbidden to move from their present locations, except when granted a special permission to do so.”

In real life today, we have a string of policies being proposed to similarly discourage companies from leaving, or failing that, to try to claw as much money as possible from them first.

Even the language used by these bill’s supporters is eerily similar to the novel, as politicians call for corporations to pay their “fair share” and bemoan that Americans have to “pick up the tax burden inverted companies shrug off.”

At the time, Rand might have thought that she was writing about an extreme, fictional society. But it seems that the Land of the Free is eager to exceed even her worst expectations.

When she wrote about the “Economic Emergency Law”, which forbade any discrimination “for any reason whatever against any person in any matter involving his livelihood”, she was likely thinking about criteria such as race, gender, and age.

She might have even considered they would try to prevent employers from making judgments based on a person’s ability, though I’m sure she would not have even imagined what politicians have actually come up with in the US.

NEW REGULATIONS

(LOOK PAST THE BILLS’ “SPUN” TITLES)

H.R. 5278: No Federal Contracts for Corporate Deserters Act

First, take the H.R. 5278: No Federal Contracts for Corporate Deserters Act, which bars federal contracts for American companies that have gone overseas for tax purposes.

H.R. 5549: Pay What You Owe Before You Go Act

Then take the H.R. 5549: Pay What You Owe Before You Go Act, which seeks the seizure of unrepatriated corporate revenue.

 S. 1972/ H.R. 3972: Fair Employment Opportunity Act

Try the S. 1972/ H.R. 3972: Fair Employment Opportunity Act that proposed to prohibit discrimination according to a person’s history of unemployment.

S. 1837: Equal Employment for All Act

Or even worse, the S. 1837: Equal Employment for All Act that would have prohibited employers from even looking at prospective employee’s credit ratings.

 H.R. 4904: Vegetables Are Really Important Eating Tools for You (VARIETY)

The literary similarities don’t just stop with corporations either. Compare the fictional Project Soybean, designed to “recondition” people’s dietary habits to the actual H.R. 4904: Vegetables Are Really Important Eating Tools for You (VARIETY).

Tell me, which one sounds more ludicrous to you? With each new piece of legislation being proposed in the Land of the Free, Atlas Shrugged seems to be ever more prophetic.

While even the most terrifying elements of the book are coming true, so are the reactions. People and companies are leaving, refusing the put up with the looting of their efforts any longer.

Despite politicians’ desperate attempts to stop it, Atlas is already shrugging.

“John Galt is Prometheus who changed his mind. After centuries of being torn by vultures in payment for having brought to men the fire of the gods, he broke his chains—and he withdrew his fire—until the day when men withdraw their vultures.”

LINK HERE to the source article

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.

10/14/2014 - Central Bank Financial Repression Leading to Bubble Liquidation and Industrial Deflation

imagesIn his latest essay, David Stockman* explains how after decades of financial repression, central banks have created huge distortions & imbalances in the global economy – now they are coming home to roost .. the impossibility of zero interst rate policy (ZIRP) forever on central bank money printers is beginning to be recognized .. “Long-standing financial repression and absurdly low interest rates have generated malinvestments and debt burdens that are crushing enterprise and true economic risk-taking throughout the world economy. In the DM (developed market economies), the resulting malady is consumer balance sheets that are bloated with debt; and in the EM (emerging markets) the ill takes the form of vastly bloated industrial capacity and public infrastructure. So if there were ever a case of ‘physician, heal thyself’, this is it .. There has been no escape velocity owing to Keynesian stimulus. Massive central bank liquidity injections have remained in the canyons of Wall Street and other major financial markets where they have enabled endless free money funding of speculation and carry trades, but have contributed virtually nothing to spending by debt-saturated households.”

LINK HERE to the article

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.

10/13/2014 - Financial Repression Causing High Liquidity Risks In Massively Levered Positions

W5-V109-2Zero Hedge references the liquidity risks inherent in BlackRock’s & Pimco’s funds in the high-yield & emerging market debt markets .. “By now it is clear to everyone that the force-feeding of free-money into financial markets by The Fed et al. has led to a scale of financial repression never before witnessed as bond yields for even the riskiest of risky names collapse to record lows and cheap-financed share buybacks raise leverage to record highs and support an ever more fragile equity wealth creation machine .. The massive (and likely levered) positions The Fed has forced the world to take on by its repression face a dramatic liquidity risk cost if they are ever to ‘realize’ any gains from the Fed’s handouts (by actually selling) .. BlackRock: ‘The risk posed by investors trying to dump bonds after the raises interest rates is ‘percolating right under’ the noses of regulators.'”

LINK HERE to the article

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.

10/12/2014 - Financial Repression Driving De-Dollarization Trend

Article identifies how South Koreans are dramatically increasing their bank deposits in Chinese currency – 55 times higher than the same period last year .. given inflation in Korea, a zero-interest rate financial repression-environment & frothy stock markets, South Koreans are diversifying their currency exposure .. “This is a well known scenario. Just as Europeans from countries with weaker currencies and economic prospects used to safeguard their savings by holding them in Deutschmarks and Swiss franks, we see the same trend happening today .. Individuals, companies and even governments are diversifying their currency exposure — mostly on the account of the U.S. dollar. Renminbi denominated bonds are now being issued by businesses all over the world– heck, even McDonald’s issued a renminbi bond .. And now the UK will become the first country in the world other than China to issue renminbi denominated government debt.”

LINK HERE to the article

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.

10/09/2014 - ORIGINS OF US FINANCIAL REPRESSION

ORIGINS OF US FINANCIAL REPRESSION

BEGAN WITH GOLD MANIPULATION (Central Bank Leasing of Gold) IN MID 1980’S

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A Regression Channel that is simply too ‘pristine’ to be real!!

Control the US Treasury “RISK FREE” baseline (and Gold Prices)

….. and you control Global Credit / Debt Growth

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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.

10/08/2014 - Unconstrained Fixed Income Becoming Popular In The Age of Financial Repression

Unconstrained bond strategies are becoming more popular, especially now that Bill Gross* is joining Janus to start a fund in this area .. one money manager: “In an era of financial repression and manipulated government bond rates, particularly in the developed markets, traditional market benchmarks currently offer low yields and long duration .. Unconstrained investing allows investors to seek the desirable characteristics of fixed-income — income, diversification and risk management — and avoid the undesirable — longer duration and high correlation to government rates .. Unconstrained strategies are not all the same and many of them are not even comparable .. Investors need to fully understand the risk and return objectives for a particular strategy and must evaluate each strategy based on its unique approach and characteristics.”

LINK HERE to the article

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.

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