We are living not in a material world but a financial repressive world. No one may feel sorry for the financial sector if this is happening, but it actually affects all investors and our long-term potential for economic growth. Financial repressions are policies taken by the government either explicitly or implicitly to help alleviate its debt problems. The objective of repressing the financial sector is to lower the cost of borrowing for the government. Periods of repression are characterized by low or negative real rates of interest which does help the financing of debtors.
The objective of this financial repression is to take from savers and give to debtors. Of course, it is never stated in so bold terms It may seem like innocent policies to help those in need of reducing their debt burden, but the reality is that it is a tax on creditors for the benefit of the government.
The repression can take the form of directed credit by the government to control capital flows inside the country. It can come in the form of capital controls to stop the flow of wealth out of a country. These capital controls will lead to the deglobalization of the world's financial markets. It could be a Tobin tax to place sands in the wheels of finance. It may take the form of regulation to direct capital to the safe assets issued by the government. It can be in the form of restrictions on innovation with financial products.
The result is all the same. there is an effort to reduce the cost of borrowing and reduce the free flow of capital to those places where it may receive a higher rate of return relative to those who think they need the capital. It is happening now and will continue as long as government deficits are increasing.
The repression can take the form of directed credit by the government to control capital flows inside the country. It can come in the form of capital controls to stop the flow of wealth out of a country. These capital controls will lead to the deglobalization of the world's financial markets. It could be a Tobin tax to place sands in the wheels of finance. It may take the form of regulation to direct capital to the safe assets issued by the government. It can be in the form of restrictions on innovation with financial products.
The result is all the same. there is an effort to reduce the cost of borrowing and reduce the free flow of capital to those places where it may receive a higher rate of return relative to those who think they need the capital. It is happening now and will continue as long as government deficits are increasing.
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