Financial Repression: Then and Now

Kirkegaard and Reinhart highlight how financial repression is often employed by highly-indebted governments in this vox article.

Exercise: Discuss the various proposals in Ireland that might be classified by these authors as financial repression.

7 replies on “Financial Repression: Then and Now”

Timely article given Bernake’s remarks (or hints) today about further unorthodox fiscal measures.

Well … Kierkegaard was in fairly ‘repressive’ mood himself in this other recent piece [h/t B E Bond]

In this piece Kierkegaard finessed the repressive Lorenzian nature of the ECB stance towards the Irish sovereign and citizen-serfs. I’ll pass it on to Blind Biddy …

The Dirt tax increases are a classic example – directing people into Post office accounts and the like.
This may indeed be a good investment if we somehow manage to stay withen the Euro as all credit inflated assets die a painful death.
Unlike Yields I think bank credit is useless in this envoirment – the input / import transfers would simply take off if we somehow go back to normal although the post 1987 envoirment was far from normal.

The UK really stands out with the dramatic change of transport patterns since 2006/7 – a real world effect of its spectacular repression policey / postive money supply policey
Meanwhile the Irish & Spanish banking jurisdictions are living with dramatically overvalued currencies for countries that did not write off their banking debt making synthetic tax based devaluations impossible – unlike Italy which having less private debt can increase tax on fuel to higher levels.

@ Philip,

The point I would like to make about financial repression, and its effect in countries such as Ireland – is the same point that Martin Wolf makes in his analysis of global capital flows, amounting to over $10 trillion in accumulated currency at this stage by the surplus nations. Martin Wolf describes one solution to our current problems, could be, that governments in those surplus (or capital export nations), may come under pressure from their citizenry, not to export such a large amount of their capital, and spend it domestically instead.

In other words, what I am saying is that the financial repression imposed by governments in the capital export nations of the world, as tolerated by the citizens of those countries, is what is leading to rising debt levels on our end, and consequent policies to reduce the same debt as listed out by Kirkegaard and Reinhart. What I am doing, is I am using a counter argument to Kirkegaard and Reinhart. I am saying, that the financial repression, that really matters and that is causing much of the trouble in Ireland and elsewhere, is happening across the globe in the nations with huge currency reserves. What I am saying is that, it is nonsensical to consider financial repression on our side of the globe, without considering currency exchange stability, and global currency flows in the bigger picture. BOH.

@ DO’D. Excellent (Kierkegaard) example of how Ireland’s creditors think.

“a [FC] rejection would leave Ireland without access to the funding it needs in the future to maintain solvency from the newly created European Stability Mechanism (ESM).”

Again, it amazes me how commentators mix up solvency and liquidity……

“…….Make no mistake. Ireland will not have any access to any additional IMF money in the future without the ESM also participating.”

Exactly the point! Great that he reiterates the previously (here) debated point.

@ All,

I suppose, another extension of my argument above: Is to compare it to the nuclear arms struggle of the cold war years, and all of the ‘game theory’, John Nash kind of stuff that occurred in the 1950s between the east and the west to the present circumstances – where instead of spending our respective budgets on nuclear arms programs – we are spending it on currency reserves instead.

What I am saying is that, it is like Sputnik, in the 1950s. The east were first into orbit. The east, in the present circumstance were the first out of the blocks, with their financial repression tactics. What we are doing in Ireland today, is to try out a counter-financial-repression tactic – and the same ‘game theory’, John Nash kind of crazy maneuver-ing applies today. BOH.

When negative real interest rates are associated with a normal level of inflation, then those interest rates are simply what is consistent with a normal market equilibrium. No less no more. That has nothing to do with financial repression.

I find this expression ‘financial repression’ highly ideology charged. Basically used by the spokespeople of the rentier class who is unhappy that the market equilibrium has turned against them.

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