Mark Thornton writes, “With politicians and central bankers seemingly gone mad with their obsession for money printing and ultra low interest rates, it is nice to know that academic economists have a term (i.e., financial repression) for the policies that have created our current economic conditions.
However, it is not a new term. Its use dates back to at least 1973 when two Stanford University economists, Edward Shaw and Ronald McKinnon, used the term in separate publications. The phrase was initially meant to criticize various policies that reduced economic growth in undeveloped countries, rather than as an indictment of the world’s leading modern economies.
Financial repression is a revolving set of policies where the government insidiously takes wealth from the private sector, and more specifically makes it easier for government to finance its debt. In today’s environment this includes:
- ZIRP or “zero interest rate policy” where many of the world’s central banks keep their lending rates to banks at or near zero. Naturally, this makes the interest rate on government debt lower than it otherwise would be.
- QE or “quantitative easing” is the central bank policy of buying up government debt from banks. This increased demand increases the price of government bonds and reduces the interest rates on those bonds.
These are the two major policies of financial repression currently in use. The combination of the two policies has allowed governments to borrow money, both short- and long-term bonds, at extremely low interest rates. This, in turn, has kept the government’s interest payments on the national debt relatively low.”
It won’t end well of that we can be certain. Take a look at the frescoes Mark refers to in his article and see if you recognize a parallel to modern America: The Allegory of Good and Bad Government
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