Patrick Barron predicts (via Mises Canada)…

I predict that the Fed will start charging negative interest rates on bank reserve accounts, which will ripple through the markets and result in negative interest rates on savings at banks.

I make this prediction only because it is the logical action of the Keynesian managers of our economy and monetary policy.

Our exporters will scream that they can’t sell goods overseas, due to the stronger dollar.

So, what is the Fed’s option? Follow the lead of Switzerland and Denmark and impose negative interest rates in order to drive down the foreign exchange rate of the dollar.

It is the final tool in the war on savings and wealth in order to spur the Keynesian goal of increasing “aggregate demand”.

If savers won’t spend their money, the government will take it from them

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“When I first heard of financial repression, it was from some IMF document, and I immediately thought it was a mistake. Why would they use a term that conveys authoritarianism or something negative when they really wanted to use some sort of boring academic phrase? It’s actually ironic they chose that term .. I think what the IMF calls financial repression is better described as financial authoritarianism. Because we’re not just talking about repressing financial things, like artificially low interest rates to help a government finance its debt, which sounds pretty academic or abstract to most people. But when you look at the indirect and the immeasurable effects that come from financial repression, it negatively affects all aspects of life. That’s why I believe it is more accurate to call it financial authoritarianism, because that’s what it basically is. Central banking and a fiat money are the main enablers of financial repression. It gives the government the tools to manipulate the currency, to manipulate the interest rate that they otherwise wouldn’t have under a sound-money kind of system. Financial repression is needed to help governments finance debt .. Dealing with an out of control government debt burden which comes from out of control government spending, is where the impetus for financial repression comes from.”

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INET Economics posted essay on new research shedding light on how today’s advanced economies depend on private sector credit more than anything we have ever seen before .. the research work indicates that our economic future could be very different from our recent past, when financial crises were relatively rare .. “Crises could become more commonplace, which will impact every stage of our financial lives, from cradle to retirement. Do we just fasten our seatbelts for a bumpy ride, or is there a way to smoothe the path ahead?” ..  more financial instability will introduce more uncertainty down the line .. “Operating in this milieu, the central banks, the governments, the Bank for International Settlements (BIS), the International Monetary Fund (IMF), and other parts of the macro-financial policy world are now taking a much keener interest in what the pros and cons of different financial regulatory structures and various macroprudential tools (designed to identify and lessen the risks to the financial system) might be.” – [Macroprudential tools entail financial repression – inflation, negative interest rates, ring fencing regulations & obfuscation.]

LINK HERE TO THE ARTICLE

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“As investors we are all now the subjects of a grotesque monetary experiment. This experiment has never been tried before, and its outcome remains uncertain. The unproven thesis, however, runs something like this: six years into a second Great Depression, the only ‘solution’ is for central banks to print ever greater amounts of money. Somehow, gifting free money to the banks that helped precipitate the crisis will lead to a ‘trickle down’ wealth effect. Instead of impoverishing those with savings, inflation will be some kind of miraculous curative, and it must be encouraged at all costs. It bears repeating: we are in an extraordinary financial environment. In the words of the fund managers at Incrementum AG: ‘We are currently on a journey to the outer reaches of the monetary universe.’ .. The market – a quaint concept of a bygone age – has largely disappeared. It has been replaced throughout the West by bureaucratic manipulation of prices, in part known as QE but better described as financial repression.”

– Tim Price

LINK HERE TO THE ARTICLE

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The Daily Bell essay points out how central banks would rather create inflation than live with a “gentle deflation” that free marketeer Murray Rothbard advocated .. after all, inflation helps governments reduce their debt burdens through financial repression .. right now banks are being paid 0.25% interest on their bank excess reserves held at the Federal Reserve, but if the Federal Reserve reduces this interest rate, it could push banks to begin lending or somehow putting this money into the real economy, ultimately generating inflationary forces – in addition to debasing currency by printing more of it, this is another way inflation can be generated .. “The banking class for no good reason has decided that inflation is preferable to deflation, probably because they (only they) have access to the printing presses and thus can cause monetary inflation. There is no reason to fear gentle deflation, but it has been made into a bogeyman. This gives bankers the justification to print. And print they must. In 2015, we’ll see a lot more of it, especially given all the alarmist warnings in the mainstream media about the danger of currency that increases in value. Conclusion: Only debasement will do.”

LINK HERE TO THE ARTICLE

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A couple years old but still relevant .. Montier explains the challenges of investing & preserving capital & purchasing power in our current environment of financial repression .. defines financial repression as: “Financial repression can be defined (somewhat loosely, admittedly) as a policy that results in consistent negative real interest rates. Keynes poetically called this the ‘euthanasia of the rentier.’ .. The tools available to engineer this outcome are many and varied, ranging from explicit (or implicit) caps on interest rates to directed lending to the government by captive domestic audiences (think the postal saving system in Japan over the last two decades) to capital controls (favoured by emerging markets in days gone by).” .. sees a battle between Scylla and Charybdis when investing in financial repression, facing either the likely but limited erosion of purchasing power from holding cash, or the uncertain but potentially disastrous loss of capital that arises from owning overvalued stocks .. “There are no easy answers to the problem of capital preservation in an age of financial repression, only difficult choices.” .. link to www.gmo.comto register for free & get the PDF or

LINK HERE TO THE ARTICLE

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Principal Global Investors’ CEO Jim McCaughan writes the Foreword in this research report by CREATE Research on investing in a debt-fueled world, within a key theme of financial repression .. report: “Investors are also worried about the revival of a long-forgotten phenomenon: financial repression. This is caused when central banks keep the rates artificially low for a long period of time in an effort to help governments finance their debts. It is feared that a combination of low rates and rising inflation will steadily vaporize public debt and erode the purchasing power of the underpinning assets.” .. the report looks at investing in this environment from a retail investor & a pension fund investor perspective .. from last year but still relevant.

LINK HERE TO THE ARTICLE

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NOTE: FIAT MISINFORMATION IS OBFUSCATING REAL SHRINKING GROWTH THAT IS PART OF THE KONDRATIEFF WINTER

IS THE KONDRATIEFF WINTER UPON US?

LINK HERE TO THE ARTICLE

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Interview with Boston University Economics Professor Laurence Kotlikoff .. Kotlikoff says Greece is in financial trouble & that could set off another global financial calamity: “So, you have the same problem. You have a country that is fiscally unsustainable, and they haven’t really been able to get out from under that situation .. It sets up a situation where you could have runs on other banks like in Italy, Spain, Portugal, and that could spread to other banks in other countries, including France and Germany. Remember, the big to do about the Cypriot banks that failed and said they weren’t going to pay off the depositors? That led to a major international panic. It was a small country with two relatively small banks.” .. bank bailins & financial repression .. a daisy chain of defaults and bank runs could happen in Europe: “It could also come to the U.S. If everybody believes the banks are going to be solvent and they can get their money out, that’s fine. But if everybody starts to run on the banks, you want to run before they do because you want to get you money out before it’s all gone.” .. sees the potential for U.S. hyperinflation if there is a loss of confidence in the FDIC deposit insurance system, as depositors take their money out & buy something real .. on the U.S. unfunded liabilities: “Social security is 33% under-financed, according to its own trustees report .. Our entire fiscal enterprise is about 58% under-financed .. the country is really broke.” .. 33 minutes

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GoldCore commentary on the implications of Greece’s recent financial turmoil – it’s affecting Spain & Italy already .. suggests Greece & the risk of a new euro zone debt crisis will again be a key focus for investors in 2015 .. Goldman Sachs recently warned: “In the event of a severe Greek government clash with international lenders, interruption of liquidity provision to Greek banks by the ECB could potentially even lead to a Cyprus-style prolonged ‘bank holiday'” .. GoldCore suggests also that market fears for potential euro exit risks could rise if this happens: “It could be that the fear-mongering of the past few weeks may become self-fulfilling prophecies if Greeks decide that their cash is safer under the mattress than in a risky Greek bank earning little or no interest Then theECB would be confronted with having to ‘bail-out’ Greece or more likely would opt for bail-ins whereby the deposits of Greek savers and companies are frozen in ‘bank holidays’ prior to being seized in a Cyprus style cash grab .. In such a scenario, the ECB would likely be forced to abandon its proposed bond-buying scheme early next year as it could not be seen to be openly buying toxic debt. This in turn could have knock on effects for the global economy as the anticipated liquidity the ECB were to provide evaporates.” .. the commentary raises the awareness of the potential for bail-ins globally in this unfolding era of financial repression.

LINK HERE TO THE ARTICLE

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Ellen Brown* explains how the recent G20 meeting rubber stamped new regulations that will make Cyprus style bank bail-ins a worldwide reality .. 24 minutes

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The NY Times article on how the British government was forced to undertake a bailout due to the bursting of the South Sea Bubble back in 1720 .. “Now, prompted by record low interest rates, the British government is planning to pay off some of the debts it racked up over hundreds of years, dating as far back as the South Sea Bubble .. and would repay part of the country’s debt from World War I, and want to pay off other bonds for debt incurred in the 18th and 19th centuries .. The maneuver is also a reminder of how debts incurred by governments are passed down through generations.”

LINK HERE TO THE ARTICLE

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Mark Nestmann reports on the decisions of the G20 group of nations from last month .. “The world’s megabanks now have official permission to pledge depositor accounts as collateral to make leveraged derivative bets. And if they lose a bet, the counterparty to the contract has first dibs on your money.” .. in addition, the G20 endorsed a proposal entitled Adequacy of Loss-Absorbing Capacity of Global Systemically Important Banks in Resolution – Deposits in banks that are too big to fail will be “promptly recapitalized” with their “unsecured debt.” (mostly bank deposits) .. “Insolvent banks will recapitalize themselves by converting your deposits – checking accounts, but also money market accounts and CDs – into stock.” .. the G20 also declared that derivatives are secured debts – your bank can pledge your bank deposit to a secured creditor so that in case the bank does not win the derivative bet – “heads the bank wins, tails you lose” .. if you have U.S. bank deposits less than the U.S.-federally insured amount – $250,000 – the above treatment won’t be applied, but consider that there is only $54 Billion in the FDIC kitty to insure $6 Trillion in insured deposits, not to mention derivatives contracts with a total value of nearly $300 trillion. The failure of just a single major Wall Street bank could exhaust the fund” .. Nestmann thinks the reason why the G20 is doing this is they hope you will invest in government bonds backed by the “full faith and credit” of its member governments – this financial repression-driven buying will help to keep down interest rates on the high debt level of G20 member governments.

LINK HERE TO THE ARTICLE

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Central Banks by creating ‘Excessive’ INFLATION actually sow their eventual destruction by creating DEFLATION

EASY CREDIT CREATES EXCESS SUPPLY & DEMAND WHICH EVENTUALLY REACH EQUILIBRIUM

1. BROUGHT FORWARD DEMAND THEN LEAVES A DEMAND RATE VACUUM
2. INFLATION REDUCES REAL DISPOSABLE INCOME WHICH FURTHER REDUCES DEMAND

SHRINKING AGGREGATE DEMAND THEN REDUCES COMMODITY PRICES WHICH LEADS TO COLLAPSING COLLATERAL VALUES

THE OIL SHOCK IS YOUR FIRST SIGN!

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Update from the IMF on some of their financial repression tools, so-called as “macroprudential policy tools.”

LINK HERE TO THE ARTICLE

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Simon Black highlights how from Sweden to the euro zone to Switzerland, central banks & some commercial banks are beginning to force nominal interest rates into negative territory .. supposedely in an effort to help generate some inflation .. “Remember, it was the ECB that has led the world into negative interest rates. They are clearly the most valiant soldier in the War on Deflation, having pushed negative interest rates into the broader banking sector. If you are a very lucky German, for example, you may now be finding yourself PAYING your local bank for the privilege of letting them make loans at your expense. And lucky institutional investors across the world are finding themselves fortunate enough to be paying NEGATIVE yields to loan money to bankrupt European governments. Look at the bright side: it’s quite an honor to be able to fight for your country (or whatever quasi-federalized supra-national entity the EU is supposed to be). You too can do your part in the War on Deflation. Yes, it might cost you your entire life’s savings and your family’s future livelihood.”

LINK HERE TO THE ARTICLE

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Ronald-Peter Stoeferle is a noted Austrian economist and money manager who believes strongly that “we should expect that financial repression as well as wealth taxes in various facets which will increasingly gain in importance in coming years”. He believes “this to be a disastrous strategy, as the redistribution will merely buy time, while the structural problems remain unsolved.”

A NEW MONETARY REGIME

Since 1971 we have had a new monetary era or regime that has directed massive debt induced growth which has been doubling every 10 years. The system presently wants and needs to deleverage but the political pressures don’t allow for central bankers and politicians to let this happen. What we have instead is policy induced inflation pressures creating monetary tectonic pressures.

Incrementum believes we presently have a “Bull market in Greed and a Bear Market in Fear” which will resolve itself with Gold being one of the big winner and moving to $2300 US/Oz. The recent weakness in Gold is due to:

• Disinflation and rising real interest rates,
• Partly declining money supply (especially in the ECB),
• Very weak commodity prices,
• Record high short positions,
• Rising opportunity cost of owning gold due to the rally in equities,
• Tightening credit standards,
• Increasingly negative analyst opinions,
• Firmer US$ based on confidence in the US Economic outlook,
• A high level of conviction in the ability of central bankers to “get it right”.

Most, if not all, of these false premises or signals will soon begin cyclically reversing.

“Financial repression is ultimately a government imposed transfer of wealth.”

AUSTRIAN INVESTING

Ronald-Peter Stoeferle and the team at Incrementum LI are developing a new approach which they refer to as Austrian Investing which combines the Macro views of the Austrian School of Economics with Asset Management. Their latest book “Austrian Investing between Inflation & Deflation (presently available in German only) shows how grasping the consequences of the interplay between inflation and deflation will be crucial for prudent investors. Investors should prepare for both scenarios – inflation and deflation.

Followers of the Austrian School have been extremely successful at anticipating major economic events like the Great Depression and the Housing Bubble.

• Monetary Policy – The Starting Point
• Macro Orientation – Most Important today
• Top-Down
• Understanding that central bankers & politicians cannot control the dynamics of inflation.

It is important to realize that radical monetary interventions will not lead to self-sustained recovery but to further turmoil in the financial markets.

AUSTRIAN INVESTING REQUIRES PROPRIETARY INFLATION INDICATORS

Understanding the Monetary Tectonic forces of Inflation and Deflation is critical to investment success. As such Incrementum LI uses their “Incrementum Inflation Signal Indicator”. Since August it has been signalling massive Disinflation / Deflation which has shifted their portfolio allocations.

 Private Investors should watch the Gold-Silver Ratio closely.

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CNBC’s Rick Santelli & Charles Biderman discuss the global 0% rate policy, how it is causing global recession.

https://youtu.be/hRGEcyYBSms

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From last year but mostly still relevant, provides insight into what financial repression is & what the investment implications are .. looks at financial repression as:

LINK HERE TO THE ARTICLE

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In his latest essay, former Assistant Secretary of the U.S. Treasury Department Dr. Paul Craig Roberts identifies the dangerous trend of more & more manipulation of the financial markets by central banks & private banks worldwide, provides analysis & consideration of whether this trend can continue or not .. emphasizes the forces of financial repression – negative interest rates – happening in a supposed economic recovery”

LINK HERE TO THE ARTICLE

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