Financial repression is in the news. It usually involves a strong connection between the government, the central bank and the financial sector. Given the post-war size of US debts, financial repression, with its dual aims of keeping interest rates low and creating or maintaining captive domestic audiences, will likely be around for a long time. It’s equivalent to a tax on bondholders and, more generally, savers.
In our age of free capital movement, financial repression is still possible. Negative real interest rates are to be found not only in the US, but also in China, Europe, Canada and the UK. But no one’s forcing Americans or Canadians to keep their money in North America, and no one’s forcing them to choose a euro, loonie or sterling savings account if they go elsewhere either. Which is lucky, with rates at 1%, 2% and 3% below inflation respectively.
The finance industry is paying the price of getting bailed out, with the world’s $30 trillion in pension funds forced to hold ever-greater quantities of sub-zero-yielding debt. But outside the still-repressed East, private savings today enjoy unheard of freedom to go where they wish and do as they please. And even there, in India and China most notably, the freedom to buy gold—the universal financial escape—is similarly at a 100-year peak.
Our current freedom to buy gold is very new, along with the wealth of alternatives—domestic and foreign—open to anyone daring to take control of their money instead of lending it to government or paying a pension-fund manager to do the same.
“In [our] mildly reflating world,” advises Bill Gross of Pimco, “unless you want to earn an inflation-adjusted return of minus 2% to 3% as offered by Treasury bills, then you must take risk in some form.” And buying gold is just such a risk—a uniquely simple and obvious one, offering a stateless escape to a borderless market.
To read Adrian Ash article: Gold Loves Financial Repression and We’ve Got it Worldwide
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