The Great Repression
Discussion
The Great Depression lasted for a decade - from 1929 - and only ended with the build-up to WW2. There have been thousands of articles, books and films about the period. But, we have now all been living through fourteen years of the 'Great (Financial) Repression', seemingly, without any political or media discussion?
Question: Just what is meant by the (economic) term 'Financial Repression'?
Answer: Financial Repression is a government policy where interest rates are deliberately held below the rate of inflation - the benefit to the state is that the real cost of borrowed money becomes negative.
The best-known example was after the second world war - the UK's savers had bought war bonds to fund the fighting of the war - successive post war governments allowed inflation to rise in order to 'inflate away' savers loans to the state. Thus, by deliberate (though unspoken) state policy, the returns on war bonds, were in 'real terms', actually negative! A bit of a kick in the teeth for all those patriotic savers, who had invested their life's savings in their country's fight against fascism - but then perhaps the policy could be justified - in that the cost of WW2, for many, was far, far greater than mere money?
Fast forward from 1945 and, in response to the 2007-8 Great Financial Crash, with the introduction of Artificially Low Interest Rates, Quantitative Easing and Corporate Bond Purchases, the state sunk to a new low. Financial Repression was introduced to bail out the Government's and the BoE's 'friends' in the city. All those corrupt and broken banks: Corporate Financial Repression.
Corporate Financial Repression - socialising corporate losses and privatising corporate profits.
At the time this might have seemed the best, if not the only, option - in order to 'save' the financial sector. But once politicians, representing political parties of all hues, realised they could simply demonstrate their political generosity, by spending money without recourse to the politically inexpedient necessity of actually having to justify tax rises to the electorate; they became addicted.
2009 The GFC £200bn
2010 Eurozone Debt Crisis £175bn
2016 Brexit referendum result £70bn
2020 Covid-19 (so far) £450bn
Yes, successive Governments, since Gordon Brown's, have printed £895bn - or over £13,000 for every man, woman and child in the country!
Like so many members of the public who, forced by (real terms) stagnant wages - and in order to finance their day-to-day expenditure, have resorted to living on credit cards, 30-year mortgages, PCP purchases etc - there is no indication that our illustrious political class will do anything to curtail the use of their miraculous money tree.
The Bank of England's Monetary Policy Committee represent only the interests of the political and financial sectors - there is no representation for the very people whose money is actually deposited in banks, building societies and pension funds.
Did any of our politicians ever ask us, the electorate, if we wanted to live under the pathetic financial delusion of 'Extend and Pretend'?
I Think not.
Imagine teaching very basic Economics to 10-year-old children. The first lesson would surely be: Just What is Money?
William Jevons: "Money's a matter of functions four: A Medium, a Measure, a Standard, a Store."
A Medium of Exchange: Money is widely accepted as a method of payment - unlike some mere esoteric crypto-currency.
A Measure of Value: Money enables the values of different goods and services to be compared.
A Standard of Deferred Payment: Money is an accepted way of settling a debt.
A Store of Value (Purchasing Power): I can hold on to money before I spend it because it will hold its value until tomorrow, next week, or even next year.
So, a "Store of Value" - ten-year-olds are taught to understand the concept.
But, for the last thirteen years, since the 2007-8 Great Financial Crash, the powers that be have destroyed the fourth function of money with Financial Repression to benefit their 'friends in the City' - by allowing the financial sector to run the economy, without any representation or even public debate as to whether their policy is in the long-term interests of Her Majesty's subjects.
Which is why the best rate of interest you get on your hard-earned savings is a fraction of the real rate of inflation. And why your employer's pension fund is in deficit. And why 'savers' have responded to 'financial coercion' by being pushed into risk assets in order to 'preserve' the real value of their savings. And why you (or your children) have been unable to purchase a home of their own. So now you know.
And the last word should go to one the USA's Founding Fathers, Thomas Jefferson, who writing about banks and banking said something along the lines of:
"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered.... I sincerely believe that banking institutions are more dangerous to our liberties than standing armies, and that the principle of spending money to be paid by posterity under the name of funding is but swindling futurity on a large scale. ... The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."
Question: Just what is meant by the (economic) term 'Financial Repression'?
Answer: Financial Repression is a government policy where interest rates are deliberately held below the rate of inflation - the benefit to the state is that the real cost of borrowed money becomes negative.
The best-known example was after the second world war - the UK's savers had bought war bonds to fund the fighting of the war - successive post war governments allowed inflation to rise in order to 'inflate away' savers loans to the state. Thus, by deliberate (though unspoken) state policy, the returns on war bonds, were in 'real terms', actually negative! A bit of a kick in the teeth for all those patriotic savers, who had invested their life's savings in their country's fight against fascism - but then perhaps the policy could be justified - in that the cost of WW2, for many, was far, far greater than mere money?
Fast forward from 1945 and, in response to the 2007-8 Great Financial Crash, with the introduction of Artificially Low Interest Rates, Quantitative Easing and Corporate Bond Purchases, the state sunk to a new low. Financial Repression was introduced to bail out the Government's and the BoE's 'friends' in the city. All those corrupt and broken banks: Corporate Financial Repression.
Corporate Financial Repression - socialising corporate losses and privatising corporate profits.
At the time this might have seemed the best, if not the only, option - in order to 'save' the financial sector. But once politicians, representing political parties of all hues, realised they could simply demonstrate their political generosity, by spending money without recourse to the politically inexpedient necessity of actually having to justify tax rises to the electorate; they became addicted.
2009 The GFC £200bn
2010 Eurozone Debt Crisis £175bn
2016 Brexit referendum result £70bn
2020 Covid-19 (so far) £450bn
Yes, successive Governments, since Gordon Brown's, have printed £895bn - or over £13,000 for every man, woman and child in the country!
Like so many members of the public who, forced by (real terms) stagnant wages - and in order to finance their day-to-day expenditure, have resorted to living on credit cards, 30-year mortgages, PCP purchases etc - there is no indication that our illustrious political class will do anything to curtail the use of their miraculous money tree.
The Bank of England's Monetary Policy Committee represent only the interests of the political and financial sectors - there is no representation for the very people whose money is actually deposited in banks, building societies and pension funds.
Did any of our politicians ever ask us, the electorate, if we wanted to live under the pathetic financial delusion of 'Extend and Pretend'?
I Think not.
Imagine teaching very basic Economics to 10-year-old children. The first lesson would surely be: Just What is Money?
William Jevons: "Money's a matter of functions four: A Medium, a Measure, a Standard, a Store."
A Medium of Exchange: Money is widely accepted as a method of payment - unlike some mere esoteric crypto-currency.
A Measure of Value: Money enables the values of different goods and services to be compared.
A Standard of Deferred Payment: Money is an accepted way of settling a debt.
A Store of Value (Purchasing Power): I can hold on to money before I spend it because it will hold its value until tomorrow, next week, or even next year.
So, a "Store of Value" - ten-year-olds are taught to understand the concept.
But, for the last thirteen years, since the 2007-8 Great Financial Crash, the powers that be have destroyed the fourth function of money with Financial Repression to benefit their 'friends in the City' - by allowing the financial sector to run the economy, without any representation or even public debate as to whether their policy is in the long-term interests of Her Majesty's subjects.
Which is why the best rate of interest you get on your hard-earned savings is a fraction of the real rate of inflation. And why your employer's pension fund is in deficit. And why 'savers' have responded to 'financial coercion' by being pushed into risk assets in order to 'preserve' the real value of their savings. And why you (or your children) have been unable to purchase a home of their own. So now you know.
And the last word should go to one the USA's Founding Fathers, Thomas Jefferson, who writing about banks and banking said something along the lines of:
"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered.... I sincerely believe that banking institutions are more dangerous to our liberties than standing armies, and that the principle of spending money to be paid by posterity under the name of funding is but swindling futurity on a large scale. ... The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."
Edited by alfaspecial on Thursday 3rd June 10:04
alfaspecial said:
...seemingly, without any political or media discussion?...
Have you been living in a cave?Have you not heard all the gnashing of teeth about "austerity"? About monetary policy? About "levelling up"?
It took leaving the EU and a virus to make the economy seem like it's not been talked about. And trust me it will back front and centre within 12mths and for a long time.
Very much in the context of the OPs post, in terms of relating to The Great Depression, the fight against fascism, the build up to WW2 and of course... MONEY.
I would encourage everyone to read Maj. Gen. Smedley D. Butlers speech from 1935. "War is a racket" At the time he was America's most decorated war hero. Nothing has changed.
https://ratical.org/ratville/CAH/warisaracket.pdf
I would encourage everyone to read Maj. Gen. Smedley D. Butlers speech from 1935. "War is a racket" At the time he was America's most decorated war hero. Nothing has changed.
https://ratical.org/ratville/CAH/warisaracket.pdf
TellYaWhatItIs said:
Very much in the context of the OPs post, in terms of relating to The Great Depression, the fight against fascism, the build up to WW2 and of course... MONEY.
I would encourage everyone to read Maj. Gen. Smedley D. Butlers speech from 1935. "War is a racket" At the time he was America's most decorated war hero. Nothing has changed.
https://ratical.org/ratville/CAH/warisaracket.pdf
Thanks for the link I read it (briefly) and have downloaded the pdf for a more detailed look.I would encourage everyone to read Maj. Gen. Smedley D. Butlers speech from 1935. "War is a racket" At the time he was America's most decorated war hero. Nothing has changed.
https://ratical.org/ratville/CAH/warisaracket.pdf
I think that the way the authorities have screwed basic economics is scary. What is even more so is that it has been done with virtually no public debate. £895bn magic-ed up from nowhere..........
Gordon Brown, so say, de-politicised ( in actuality, privatised) the interest rate setting agenda - so something as fundamental as the amount of money in the system is determined by a Government's 'placemen' without any political responsibility......
Joey Deacon said:
Borrow as much as you can and put it into the stock market or assets.
I don't disagree in theory but I think it takes a brave man right now to bet on the stock markets and/or most asset classes; both of which have already risen furiously. I won't be liquidating either my portfolio or property, but I don't have balls big enough to throw spare cash at an more, or leverage myself in an way. Which is why I won't ever be rich, no doubt.
Shnozz said:
Joey Deacon said:
Borrow as much as you can and put it into the stock market or assets.
I don't disagree in theory but I think it takes a brave man right now to bet on the stock markets and/or most asset classes; both of which have already risen furiously. I won't be liquidating either my portfolio or property, but I don't have balls big enough to throw spare cash at an more, or leverage myself in an way. Which is why I won't ever be rich, no doubt.
jimPH said:
What else do you do with it though?
I wish I had an answer. I just don't like the economic horizon right now and would rather have an insurance fund even if its effectively losing to inflation. Even if I avoided cash, I certainly don't want to be carrying any debt. But, as I say, that is why I shall never be rich as its well-structured debt/leverage that the wealthy capitalise upon. And during every period of high inflation I kick myself for being cautious.alfaspecial said:
Thanks for the link I read it (briefly) and have downloaded the pdf for a more detailed look.
I think that the way the authorities have screwed basic economics is scary. What is even more so is that it has been done with virtually no public debate. £895bn magic-ed up from nowhere..........
Gordon Brown, so say, de-politicised ( in actuality, privatised) the interest rate setting agenda - so something as fundamental as the amount of money in the system is determined by a Government's 'placemen' without any political responsibility......
You're welcome, it's an eye opener alright.I think that the way the authorities have screwed basic economics is scary. What is even more so is that it has been done with virtually no public debate. £895bn magic-ed up from nowhere..........
Gordon Brown, so say, de-politicised ( in actuality, privatised) the interest rate setting agenda - so something as fundamental as the amount of money in the system is determined by a Government's 'placemen' without any political responsibility......
I've posted that link before and always get a thank you from at least one person.
TellYaWhatItIs said:
Very much in the context of the OPs post, in terms of relating to The Great Depression, the fight against fascism, the build up to WW2 and of course... MONEY.
I would encourage everyone to read Maj. Gen. Smedley D. Butlers speech from 1935. "War is a racket" At the time he was America's most decorated war hero. Nothing has changed.
https://ratical.org/ratville/CAH/warisaracket.pdf
Thanks for the link.I would encourage everyone to read Maj. Gen. Smedley D. Butlers speech from 1935. "War is a racket" At the time he was America's most decorated war hero. Nothing has changed.
https://ratical.org/ratville/CAH/warisaracket.pdf
My paternal grandmother was of the same opinion. She kept her resentment of Churchill going even after his death. I'm told that she would berate anyone who, pre-WWII, said what a nice bloke he was. During the war, she was evidently just as voluable but her kids tried to quieten her.
She lost sons, sons-in-law and a couple of daughters in the two world wars and had her, very similar, theories about why WWI was 'allowed' to start.
Yet there was a state funeral for one of the (numerous) Krupps. An attendee was ex SS, fascist, anti-semitic and slave-labour owning giant of industry. He was cheered, but then he would be as he was one of the few Germans attending who'd actually won a war. Or two.
Wars are there for the rich to get richer. Many in the USA came out of WWII significantly richer, and much more powerful. America's influence and empire building had increased by as much.
My father lost four or five brothers in the world wars, two on the same day on different warships in the Indian Ocean. Every sister - he had 10 - had lost a husband, one at least lost two. My mother lost a brother. My whole extended family were anti-war. Not quite pacifist - my father joined before conscription - but were willing to challenge anyone who revelled in the supposed glory of wars.
It's not saying anything new, but my father said that with wars, it was a question of which side lost the least. There were never any winners, apart from those who didn't fight.
I read a book, back in 2014-15, about the build up to WWI. It was called Sleepwalkers, the point being put being that the war could have been stopped at numerous times. But our goverment, and, no doubt, those of France and Germany, had powerful industrians in it and as a lobby, those outside had a great deal of influence.
That's all depressing enough, but what is worse is that little has changed.
Great post Derek, thanks for sharing that history.
I remember my grand mother back in 2008 interrupting my father and I as we debated during the 2007 /8 GFC, simply saying to us "will you two give over, it's just another reset, they do this every so often and the rich get richer" Which I just dismissed at the time.
Every war fought it told as a just war whereby we the good guys must come to the aid of a nation to overthrow a dangerous dictator or regime, and never once are the geopolitical, strategic or economic reasons behind war discussed in the narrative.
On a lighter note, although slightly OT, you might enjoy a stand up comedic sketch by Rob Newman, the History of Oil.
Although I don't agree 100% on all presented, it's good entertainment.
https://youtu.be/Qu47fIkIsY8
I remember my grand mother back in 2008 interrupting my father and I as we debated during the 2007 /8 GFC, simply saying to us "will you two give over, it's just another reset, they do this every so often and the rich get richer" Which I just dismissed at the time.
Every war fought it told as a just war whereby we the good guys must come to the aid of a nation to overthrow a dangerous dictator or regime, and never once are the geopolitical, strategic or economic reasons behind war discussed in the narrative.
On a lighter note, although slightly OT, you might enjoy a stand up comedic sketch by Rob Newman, the History of Oil.
Although I don't agree 100% on all presented, it's good entertainment.
https://youtu.be/Qu47fIkIsY8
I don’t see a proper conventional war coming.
We’ve had T.W.A.T (the war against terror)
Now we have T.W.A.T.V (the war against the virus)
Each time, we lose freedoms and money printing goes ape s
t, while we’re all distracted and have our money nicked.
Cripes even with ttV we’ve had the ‘clap for carers’ and ‘heroes’ like you’d have in a war.
That sense we’re all in it together, while plenty have been shat out by society through all this.
Oh I forgot, we’ve got T.W.A.T.C (the war against temperature change)
All these problems we have, and oh look, if we just pay all our money they’ll all sort of go away, and our government can help... but not really, another T.W.A... will come along to fool you into yet more dumb service to the machine that is the Western banking hegemony.
We’ve had T.W.A.T (the war against terror)
Now we have T.W.A.T.V (the war against the virus)
Each time, we lose freedoms and money printing goes ape s
t, while we’re all distracted and have our money nicked.Cripes even with t
tV we’ve had the ‘clap for carers’ and ‘heroes’ like you’d have in a war.That sense we’re all in it together, while plenty have been shat out by society through all this.
Oh I forgot, we’ve got T.W.A.T.C (the war against temperature change)
All these problems we have, and oh look, if we just pay all our money they’ll all sort of go away, and our government can help... but not really, another T.W.A... will come along to fool you into yet more dumb service to the machine that is the Western banking hegemony.
Mr Whippy said:
I don’t see a proper conventional war coming.
We’ve had T.W.A.T (the war against terror)
Now we have T.W.A.T.V (the war against the virus)
Each time, we lose freedoms and money printing goes ape st, while we’re all distracted and have our money nicked.
Cripes even with ttV we’ve had the ‘clap for carers’ and ‘heroes’ like you’d have in a war.
That sense we’re all in it together, while plenty have been shat out by society through all this.
Oh I forgot, we’ve got T.W.A.T.C (the war against temperature change)
All these problems we have, and oh look, if we just pay all our money they’ll all sort of go away, and our government can help... but not really, another T.W.A... will come along to fool you into yet more dumb service to the machine that is the Western banking hegemony.
T.W.A.T.S........ The War Against The Saver?We’ve had T.W.A.T (the war against terror)
Now we have T.W.A.T.V (the war against the virus)
Each time, we lose freedoms and money printing goes ape s
t, while we’re all distracted and have our money nicked.Cripes even with t
tV we’ve had the ‘clap for carers’ and ‘heroes’ like you’d have in a war.That sense we’re all in it together, while plenty have been shat out by society through all this.
Oh I forgot, we’ve got T.W.A.T.C (the war against temperature change)
All these problems we have, and oh look, if we just pay all our money they’ll all sort of go away, and our government can help... but not really, another T.W.A... will come along to fool you into yet more dumb service to the machine that is the Western banking hegemony.
I do like Thomas Jefferson's quote I posted in the op.
He made numerous other quote on the danger of (a country's) banking
Quote “Everything predicted by the enemies of banks, in the beginning, is now coming to pass. We are to be ruined now by the deluge of bank paper. It is cruel that such revolutions in private fortunes should be at the mercy of avaricious adventurers, who, instead of employing their capital, if any they have, in manufactures, commerce, and other useful pursuits, make it an instrument to burden all the interchanges of property with their swindling profits, profits which are the price of no useful industry of theirs.” –Thomas Jefferson to Thomas Cooper, 1814. ME 14:61
“The art and mystery of banks… is established on the principle that ‘private debts are a public blessing.‘ That the evidences of those private debts, called bank notes, become active capital, and aliment the whole commerce, manufactures, and agriculture of the United States. Here are a set of people, for instance, who have bestowed on us the great blessing of running in our debt about two hundred millions of dollars, without our knowing who they are, where they are, or what property they have to pay this debt when called on.”
“A spirit… of gambling in our public paper has seized on too many of our citizens, and we fear it will check our commerce, arts, manufactures, and agriculture, unless stopped.” –Thomas Jefferson to William Carmichael, 1791. ME 8:230
End Quote
alfaspecial said:
1. What is even more so is that it has been done with virtually no public debate. £895bn magic-ed up from nowhere..........
2. Gordon Brown, so say, de-politicised ( in actuality, privatised) the interest rate setting agenda - so something as fundamental as the amount of money in the system is determined by a Government's 'placemen' without any political responsibility......
First Post talks about explaining things to a 10 year old, then you post this.2. Gordon Brown, so say, de-politicised ( in actuality, privatised) the interest rate setting agenda - so something as fundamental as the amount of money in the system is determined by a Government's 'placemen' without any political responsibility......
If you want to explain things to 10 year old, better not treat them like f
king idiots. It'll certainly stop them making tits if themselves in later life as much of this forum proves. So let's dial it back into reality a tad (difficult given brevity - but you are taking a bit of a liberty with the quoted post)...1. There is no "magic'd up from nowhere", its borrowed from or rather a bet against future growth. To stimulate growth the borrows for fiscal investment/ spend (its critical to get the correct investment strategy - not beer and fags like some want). The debt is bought by private institutions (we don't do monetary financing here - even if that secondary market wash is a bit of a fugazi), but then used as collateral to borrow GBP from the BoE to spend back in the economy (create additional leverage / credit). Once inflation hits certain levels (in theory fueled by this credit growth), the BoE sells back debt into the market reducing inflation (removing money from circulation), thus reducing its balance sheet. The cost to government in servicing the debt erodes over time, given inflation - a lot of the debt is rolled over. IF you have a maturing gilt, it's principal payback is funded by new borrowing (so the liability column stays the same, but in real terms the amount borrowed has reduced). Ideally you want to roll less than you mature in face value, but it's NOT a necessity.
2. It's not a privatised rate setting agenda, it's public. The BoE is entirely independent in operation, it's mandate and operating corridor is set by the govt. The inflation corridor is public knowledge and they limited room to manoeuvre. Inflation and growth are the primary determination of bank rate, little else. If they borrow a lot and fail to generate growth (like beer and fag funding), then the credit spread on Gilts increases- but that's not largely within the BOE mandate......
There is a theory, called (gilded) Hall of Mirrors, where the Central Bank gets trapped in its forward guidance speeches (all Central Bankers do this to avoid spooking the market), but that's more a Fed Reserve issue than BoE.
The central thrust of the original post has some merit, but is way too angry and drifting of into rage space. We are overly reliant on credit / leverage to fuel growth, as wage inflation is appallingly low. You can't deleverage the economy unless you do something about that, but the medicine there is too much for those on the right (universal job guarantees, MMT etc) or the fake Liberals on the left (an honest discussion on how corporates abuse immigration and global mobility- it has FA to do with Polish plumbers). Misty eyed nostalgia doesn't help much given the size of the growth. Central Bank sheets are up 400% since 2008, and that's trucked into the economy and supercharged with leverage creation. I used to finance equities for a living. 5 years ago, if I lent against 1m Apple Shs; I'd have given around $25m. Today, probably $120m+.
If you think a return to "normalised" interest rates is a near time possibility, I applaud your optimism; but we are probably waaaaaaaaaaaay past the point of no return now. Leverage creation dependency in the EU has lead to their Banking system having 300%+ the balance sheet of the entire blocks GDP. And they rely on banking subsidy (tiering) and actual negative rates. Even shifting them to zero, would collapse their entire economy AND RoW. We are not much different, but have better control over fiscal and monetary levers. US debt mountain is off the scale, but it's still regarded as a reserve currency.
It might be the governments smoke and mirrored us into the current situation, but anyone who bought a phone on monthlies, had a mortgage, bought a BTL, invested their pension in Equities benefitted or was part of the leverage push......
stongle said:
alfaspecial said:
1. What is even more so is that it has been done with virtually no public debate. £895bn magic-ed up from nowhere..........
2. Gordon Brown, so say, de-politicised ( in actuality, privatised) the interest rate setting agenda - so something as fundamental as the amount of money in the system is determined by a Government's 'placemen' without any political responsibility......
First Post talks about explaining things to a 10 year old, then you post this.2. Gordon Brown, so say, de-politicised ( in actuality, privatised) the interest rate setting agenda - so something as fundamental as the amount of money in the system is determined by a Government's 'placemen' without any political responsibility......
If you want to explain things to 10 year old, better not treat them like f
king idiots. It'll certainly stop them making tits if themselves in later life as much of this forum proves. So let's dial it back into reality a tad (difficult given brevity - but you are taking a bit of a liberty with the quoted post)...1. There is no "magic'd up from nowhere", its borrowed from or rather a bet against future growth. To stimulate growth the borrows for fiscal investment/ spend (its critical to get the correct investment strategy - not beer and fags like some want). The debt is bought by private institutions (we don't do monetary financing here - even if that secondary market wash is a bit of a fugazi), but then used as collateral to borrow GBP from the BoE to spend back in the economy (create additional leverage / credit). Once inflation hits certain levels (in theory fueled by this credit growth), the BoE sells back debt into the market reducing inflation (removing money from circulation), thus reducing its balance sheet. The cost to government in servicing the debt erodes over time, given inflation - a lot of the debt is rolled over. IF you have a maturing gilt, it's principal payback is funded by new borrowing (so the liability column stays the same, but in real terms the amount borrowed has reduced). Ideally you want to roll less than you mature in face value, but it's NOT a necessity.
2. It's not a privatised rate setting agenda, it's public. The BoE is entirely independent in operation, it's mandate and operating corridor is set by the govt. The inflation corridor is public knowledge and they limited room to manoeuvre. Inflation and growth are the primary determination of bank rate, little else. If they borrow a lot and fail to generate growth (like beer and fag funding), then the credit spread on Gilts increases- but that's not largely within the BOE mandate......
There is a theory, called (gilded) Hall of Mirrors, where the Central Bank gets trapped in its forward guidance speeches (all Central Bankers do this to avoid spooking the market), but that's more a Fed Reserve issue than BoE.
The central thrust of the original post has some merit, but is way too angry and drifting of into rage space. We are overly reliant on credit / leverage to fuel growth, as wage inflation is appallingly low. You can't deleverage the economy unless you do something about that, but the medicine there is too much for those on the right (universal job guarantees, MMT etc) or the fake Liberals on the left (an honest discussion on how corporates abuse immigration and global mobility- it has FA to do with Polish plumbers). Misty eyed nostalgia doesn't help much given the size of the growth. Central Bank sheets are up 400% since 2008, and that's trucked into the economy and supercharged with leverage creation. I used to finance equities for a living. 5 years ago, if I lent against 1m Apple Shs; I'd have given around $25m. Today, probably $120m+.
If you think a return to "normalised" interest rates is a near time possibility, I applaud your optimism; but we are probably waaaaaaaaaaaay past the point of no return now. Leverage creation dependency in the EU has lead to their Banking system having 300%+ the balance sheet of the entire blocks GDP. And they rely on banking subsidy (tiering) and actual negative rates. Even shifting them to zero, would collapse their entire economy AND RoW. We are not much different, but have better control over fiscal and monetary levers. US debt mountain is off the scale, but it's still regarded as a reserve currency.
It might be the governments smoke and mirrored us into the current situation, but anyone who bought a phone on monthlies, had a mortgage, bought a BTL, invested their pension in Equities benefitted or was part of the leverage push......
Financial Repression, as a tool, breaks one of the fundamental functions of money (Jevons) - that money is a store of value.
If you have money and it falls in 'real' value then the rational person will spend now rather than (save it) plan for the future.
or
They will buy something they hope will outperform the falling value of their cash - BITCOIN, BTLs, or whatever.
But the herd mentality has just pushed the price of (just about) everything far, far beyond any logical value.
On PH there are threads on the £120k Ford Escort, the £85k TR6 etc.......
The price of something is usually determined by supply and demand - an interaction between buyer and seller - but now it's a case of how little the buyer can borrow at..... with a belief that he will find A Greater Fool at some time in the future.......
Artificially low interest rates make for a bubble economy and bubbles always go 'pop'
My point is that there has been virtually NO public debate on the matter of Financial Repression
Google 'Financial Repression' and see how many hits you get - articles in the MSM - There are hardly any.
£ Billions have been blown on supporting the feckless and the reckless
I believe now would be an appropriate time to consider the real losers under the ultra low interest rate / quantitative easing policies of the last decade. These losers include:
1) Savers receiving negative interest rates resulting in falling demand and people generally losing the savings habit, creating long term problems.
2) Savers being pushed into chasing yield ie purchasing risky assets and creating long term imbalances in the economy eg BTL housing/BITCOIN.
3) Businesses that have been forced into competing against zombie companies - viable businesses are, in effect, subsidising market failures.
4) Zombie companies being able to survive and prosper without innovation, resulting in declining productivity
5) Asset bubbles such as housing, particularly BTL, preventing younger people from purchasing their own property
6) High house prices, as a result of ultra low interest rates, help to buy etc distort personal financial planning. Home ownership is a form of pension in that it implies current deferment of spending in favour of some future benefit - something being denied to a whole generation.
7) The Global Financial Crisis was substantially a result of a poor regulatory regime - have we learned from this? No. Refer to the decline in car ownership where now most car sales are leases. The GFC of 2007-8 caused by credit excess is now being fought with credit excess...
8) Lose lending regimes have encouraged short term, high cost loans and a willingness/perceived necessity to live, day to day, relying on the oxymoron that is 'cheap credit'.
9) Undoubtedly the extended period of credit excess has impacted on some more than others
(10) Artificially low interest rates have encouraged businesses to buy back shares, by diverting funds that should be invested (in the company) - artificially increasing share prices to the benefit of Directors.
11) The very banks that were market failures at the time of the GFC are now more powerful than ever. Profits have been privatised, losses socialised.
2) If the BoE was not a 'private rate setting agenda' there would be some public accountability.
Successive Governments have forced Police & Crime Commissioners onto a largely disinterested electorate in the name of democracy but have we had any (electoral) say on whether the MPC are doing a good job?
No. It's a cosy revolving door between the big financial institutions and politicians.
eg What does Chuka Umunna know about sustainability? But he turns up as a senior adviser to JP Morgan, on God knows what salary.
https://www.theguardian.com/politics/2021/feb/10/j...
The 'levers' that the government have to address the issues in this thread - would it be correct to assume they are quickly becoming useless?
If not useless then for example if interest rates were increased to match inflation, to stop people borrowing from the future via using debt - the result would likely mean hundreds of thousands defaulting on their mortgages and other assets rented "to the limit" monthly payments.
This would then likely trigger bank failures and anybody with savings would lose their money (if over the £85k threshold - if the government of course would uphold this guarantee if it ever came to that situation).
So what is the way out of this going forward?
If not useless then for example if interest rates were increased to match inflation, to stop people borrowing from the future via using debt - the result would likely mean hundreds of thousands defaulting on their mortgages and other assets rented "to the limit" monthly payments.
This would then likely trigger bank failures and anybody with savings would lose their money (if over the £85k threshold - if the government of course would uphold this guarantee if it ever came to that situation).
So what is the way out of this going forward?
stongle said:
If you think a return to "normalised" interest rates is a near time possibility, I applaud your optimism; but we are probably waaaaaaaaaaaay past the point of no return now. Leverage creation dependency in the EU has lead to their Banking system having 300%+ the balance sheet of the entire blocks GDP. And they rely on banking subsidy (tiering) and actual negative rates. Even shifting them to zero, would collapse their entire economy AND RoW. We are not much different, but have better control over fiscal and monetary levers. US debt mountain is off the scale, but it's still regarded as a reserve currency.
It might be the governments smoke and mirrored us into the current situation, but anyone who bought a phone on monthlies, had a mortgage, bought a BTL, invested their pension in Equities benefitted or was part of the leverage push......
It works until it doesn't.It might be the governments smoke and mirrored us into the current situation, but anyone who bought a phone on monthlies, had a mortgage, bought a BTL, invested their pension in Equities benefitted or was part of the leverage push......
One day soon an actual tragedy will occur and the elephant will materialise and loom large.
The game will be up for the Western hegemony, and it'll happen all at once when it does.
Timing when the tensions with China turn from a game to a reality, for example, will be difficult.
GroundZero said:
The 'levers' that the government have to address the issues in this thread - would it be correct to assume they are quickly becoming useless?
If not useless then for example if interest rates were increased to match inflation, to stop people borrowing from the future via using debt - the result would likely mean hundreds of thousands defaulting on their mortgages and other assets rented "to the limit" monthly payments.
This would then likely trigger bank failures and anybody with savings would lose their money (if over the £85k threshold - if the government of course would uphold this guarantee if it ever came to that situation).
So what is the way out of this going forward?
It looks to me like the end destination is a reset of the current system. If not useless then for example if interest rates were increased to match inflation, to stop people borrowing from the future via using debt - the result would likely mean hundreds of thousands defaulting on their mortgages and other assets rented "to the limit" monthly payments.
This would then likely trigger bank failures and anybody with savings would lose their money (if over the £85k threshold - if the government of course would uphold this guarantee if it ever came to that situation).
So what is the way out of this going forward?
The can has been kicked down the road too many times, and as you say, the current levers have diminishing returns. The strain is definitely growing.
With furlough and global social and business support schemes ongoing, I dread to think what the Debt to GDP % will be after all this. It was ~ 320% in Jan 2020. It looks to me like money is being spent as if it will never have to be paid back.
Edited by TellYaWhatItIs on Friday 4th June 11:48
TellYaWhatItIs said:
It looks to me like money is being spent as if it will never have to be paid back.
It never is paid back. When has the debt ever been paid down? At best we cut the deficit a bit.The debt is all of ours. Pensions, property, savings.
Remember this is all a ‘war on something’, so we’re all in it together remember... war, that makes it all ok that a few make out like bandits at everyone else’s expense.
Do what everyone else isn’t doing.
Everyone looks to be in on the inflation trade.
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