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The article mentions at several point how the "financial repression" will be negative to investors. But what about for the majority of the population that holds

The article mentions at several point how the "financial repression" will be negative to investors. But what about for the majority of the population that holds little to no financial assets? Are you expecting a repeat of the financial repression that dominated the decades after World War Two? Weren't those decades also characterized by unprecedented economic growth and increase in standards of living? Isn't what the author says government will do perfectly defensible from a Keynesian perspective, not to mention from a democratic perspective (why should unelected central bankers have this sort of economic powers over duly elected representatives?)

core-questions 6y ago
> But what about for the majority of the population that holds little to no financial assets? Inflation that is higher than the interest rate on savings is essentially a hidden tax, one that incentivizes people to not save their money because the time value of it changes, leading toward it being more valuable sooner rather than later. This will definitely impact the middle class more than anyone else: the price of goods will rise while salaries remain fairly stagnant (so-called "stagflation"). Essentially, all of our meager savings are going to be pillaged in order to > Weren't those decades also characterized by unprecedented economic growth and increase in standards of living? Consider this: dollars can be thought of as representing favours owed, in a prioritizing sense (i.e. if I want you to do something for me, to the exclusion of other offers, I'll offer you more money). In an inflationary environment with rising costs, we'll all have less money in terms of purchasing power as time goes along - essentially, we end up owing each other fewer favours in the future - so it behooves us to call them in earlier rather than later. This _should_ stimulate people into buying a lot of things and therefore boost business (and GDP) as people all start essentially forcing each other to work harder, hire more help, etc. but may backfire as people see it as a reason to start finding inflation-proof investment options. Some will invest in hard currencies, some in commodities or real estate, but of course, some in simple consumer goods. Either way, it stands to reason that if Napier is right, everything's about to get more expensive, though at the same time we'll probably also see a lot of consumer credit. Weird.
- imtringued 6y ago
  I don't know why you talk about stagflation without explaining why it would happen. >This _should_ stimulate people into buying a lot of things and therefore boost business (and GDP) as people all start essentially forcing each other to work harder, hire more help, etc. but may backfire as people see it as a reason to start finding inflation-proof investment options. Businesses are inflation proof investment options. The real reason why stagflation happens is that the supply side can't respond to government induced demand. There is actually a pretty convenient scapegoat for this right now. Governments effectively closed businesses that can't work remotely to prevent the spread of the virus. Induced demand can't reopen those closed businesses so stagflation could happen. However, if it does happen, how long would it last? It certainly won't take a decade and I'm optimistic that everything will be fine in less than 5 years.
C1sc0cat 6y ago
In which country for a long time after ww2 in the UK you where only allowed to take I think £50 out of the country.
pjc50 6y ago
"Financial repression" is one of those heavily loaded political terms that annoys me, because of the implication that the investment class are owed a positive risk-free rate of return even if that's at the cost of the rest of society. However, when I started reading this article I thought it might be a rant about ZIRP, but it's actually much more sensible. It's extremely level-headed, refers to pragmatic evidence, and isn't interested in name calling. On the other hand, he still doesn't articulate what he means by "financial repression" very clearly. >> The cornerstones of the last period of financial repression after World War II were capital controls and the forcing of domestic savings institutions to buy domestic government bonds. Do you expect both of these measures to be introduced again? > Yes. Domestic savings institutions like pension funds can easily be forced to buy domestic government bonds at low interest rates. This is kind of already happening .. voluntarily? Treasury rates hover around zero. I think the time may have come to re-evaluate capital controls while we're re-evaluating globalisation and its positive and negative effects. Is transferring hundreds of billions of dollars to opaque structures on tiny islands really good for the general public? > If we’re taking the next 10 years, I see inflation between 4 and 8%, somewhere around that That's .. worse than what we're used to, but not a disaster? What really matters is the link between price and wage inflation. Remember that most members of the general public in the west aren't worried about inflation eroding their cash assets because they have none or are negative (mortgaged). But we are worried about our salaries being eroded. UK bond yields: the coalition government spent the lives of disabled people propping up "austerity" nominally to protect the credit rating, which it promptly threw out the window to in the course of Brexit. It seems likely that the UK situation will get worse. Another thing to think about: state control directing credit to businesses to increase employment was a big part of how China has achieved spectacular growth rates over the decades since consolidating power at Tianamen.
- roenxi 6y ago
  > "Financial repression" is one of those heavily loaded political terms that annoys me, because of the implication that the investment class are owed a positive risk-free rate of return even if that's at the cost of the rest of society. The investor class aren't owed anything and the jaw dropping foolish policy of bailing out losers needs to stop. But two points; first just to be clear on terms there is no such thing as a return that is free from risk. The term 'risk free returns' means no risk of the contract counterparty welching on the terms of the contract. The other background risks still exist. Nobody knows what the return on bonds will be in real terms and investors get involved in them with the knowledge that the investment could well be worthless or worth-negative in real terms. Second - if the rate of return is negative then that really just means nobody rational will be willingly to lend the money to the government. So while I may not be owed a positive rate of return (which makes sense, I can't force anyone to borrow from me) there is no fair situation where I accept a negative (or nil) expected rate of return for taking on real risk.
alecco 6y ago
Right there in the article, the biggest losers are workers: > Domestic savings institutions like pension funds can easily be forced to buy domestic government bonds at low interest rates. In the financial industry they are called dumb money.

core-questions 6y ago

> But what about for the majority of the population that holds little to no financial assets? Inflation that is higher than the interest rate on savings is essentially a hidden tax, one that incentivizes people to not save their money because the time value of it changes, leading toward it being more valuable sooner rather than later. This will definitely impact the middle class more than anyone else: the price of goods will rise while salaries remain fairly stagnant (so-called "stagflation"). Essentially, all of our meager savings are going to be pillaged in order to > Weren't those decades also characterized by unprecedented economic growth and increase in standards of living? Consider this: dollars can be thought of as representing favours owed, in a prioritizing sense (i.e. if I want you to do something for me, to the exclusion of other offers, I'll offer you more money). In an inflationary environment with rising costs, we'll all have less money in terms of purchasing power as time goes along - essentially, we end up owing each other fewer favours in the future - so it behooves us to call them in earlier rather than later. This _should_ stimulate people into buying a lot of things and therefore boost business (and GDP) as people all start essentially forcing each other to work harder, hire more help, etc. but may backfire as people see it as a reason to start finding inflation-proof investment options. Some will invest in hard currencies, some in commodities or real estate, but of course, some in simple consumer goods. Either way, it stands to reason that if Napier is right, everything's about to get more expensive, though at the same time we'll probably also see a lot of consumer credit. Weird.

imtringued 6y ago
I don't know why you talk about stagflation without explaining why it would happen. >This _should_ stimulate people into buying a lot of things and therefore boost business (and GDP) as people all start essentially forcing each other to work harder, hire more help, etc. but may backfire as people see it as a reason to start finding inflation-proof investment options. Businesses are inflation proof investment options. The real reason why stagflation happens is that the supply side can't respond to government induced demand. There is actually a pretty convenient scapegoat for this right now. Governments effectively closed businesses that can't work remotely to prevent the spread of the virus. Induced demand can't reopen those closed businesses so stagflation could happen. However, if it does happen, how long would it last? It certainly won't take a decade and I'm optimistic that everything will be fine in less than 5 years.

C1sc0cat 6y ago

In which country for a long time after ww2 in the UK you where only allowed to take I think £50 out of the country.

pjc50 6y ago

"Financial repression" is one of those heavily loaded political terms that annoys me, because of the implication that the investment class are owed a positive risk-free rate of return even if that's at the cost of the rest of society. However, when I started reading this article I thought it might be a rant about ZIRP, but it's actually much more sensible. It's extremely level-headed, refers to pragmatic evidence, and isn't interested in name calling. On the other hand, he still doesn't articulate what he means by "financial repression" very clearly. >> The cornerstones of the last period of financial repression after World War II were capital controls and the forcing of domestic savings institutions to buy domestic government bonds. Do you expect both of these measures to be introduced again? > Yes. Domestic savings institutions like pension funds can easily be forced to buy domestic government bonds at low interest rates. This is kind of already happening .. voluntarily? Treasury rates hover around zero. I think the time may have come to re-evaluate capital controls while we're re-evaluating globalisation and its positive and negative effects. Is transferring hundreds of billions of dollars to opaque structures on tiny islands really good for the general public? > If we’re taking the next 10 years, I see inflation between 4 and 8%, somewhere around that That's .. worse than what we're used to, but not a disaster? What really matters is the link between price and wage inflation. Remember that most members of the general public in the west aren't worried about inflation eroding their cash assets because they have none or are negative (mortgaged). But we are worried about our salaries being eroded. UK bond yields: the coalition government spent the lives of disabled people propping up "austerity" nominally to protect the credit rating, which it promptly threw out the window to in the course of Brexit. It seems likely that the UK situation will get worse. Another thing to think about: state control directing credit to businesses to increase employment was a big part of how China has achieved spectacular growth rates over the decades since consolidating power at Tianamen.

roenxi 6y ago
> "Financial repression" is one of those heavily loaded political terms that annoys me, because of the implication that the investment class are owed a positive risk-free rate of return even if that's at the cost of the rest of society. The investor class aren't owed anything and the jaw dropping foolish policy of bailing out losers needs to stop. But two points; first just to be clear on terms there is no such thing as a return that is free from risk. The term 'risk free returns' means no risk of the contract counterparty welching on the terms of the contract. The other background risks still exist. Nobody knows what the return on bonds will be in real terms and investors get involved in them with the knowledge that the investment could well be worthless or worth-negative in real terms. Second - if the rate of return is negative then that really just means nobody rational will be willingly to lend the money to the government. So while I may not be owed a positive rate of return (which makes sense, I can't force anyone to borrow from me) there is no fair situation where I accept a negative (or nil) expected rate of return for taking on real risk.

alecco 6y ago

Right there in the article, the biggest losers are workers: > Domestic savings institutions like pension funds can easily be forced to buy domestic government bonds at low interest rates. In the financial industry they are called dumb money.