Default, Deflation and Financial Repression
Back in March 2011, author Carmen Reinhart wrote a comment in Bloomberg describing the term “financial repression.” She wrote:
“As they have before in the aftermath of financial crises or wars, governments and central banks are increasingly resorting to a form of “taxation” that helps liquidate the huge overhang of public and private debt and eases the burden of servicing that debt."
Such policies, known as financial repression, usually involve a strong connection between the government, the central bank and the financial sector. In the U.S., as in Europe, at present, this means consistent negative real interest rates (yielding less than the rate of inflation) that are equivalent to a tax on bondholders and, more generally, savers.”
http://www.bloomberg.com/news/2012-03-11/financial-repression-has-come-b...
In the FDIC data released this week, the financial repression imposed by Ben Bernanke, Janet Yellen and the rest of the Federal Open Market Committee over the past five years is very apparent. Chief among the data points to be noted is that net interest expense, which is the money paid to depositors at banks, continues to fall. While all banks earned about $118 billion in interest income last quarter, they paid just $13 billion to depositors, a graphic example of the “financial repression” used by the Fed to subsidize the US banking industry.
http://www2.fdic.gov/qbp/qbpSelect.asp?menuItem=QBP
Notice that while the Fed has maintained the net interest income to banks, the earnings of depositors have fallen more than 90% since 2008. Via QE, the Fed is subsidizing all banks to the tune of over $100 billion per quarter in artificially depressed interest cost and income to depositors of all stripes. By robbing consumers and all savers of income, the FOMC is in fact feeding deflation and hurting growth and employment. The chart below using data from the FDIC shows the interest earnings, expenses and net interest income through the end of September 2013 for all US banks.
Prior to the 2007 financial crisis, total interest expense for all US banks was over $100 billion every three months and interest income was almost $200 billion. In order to maintain the net interest margin for banks at +/- $100 billion per quarter, the Fed is confiscating income of US savers, including companies, investors and the elderly, of almost the same amount each quarter. This badly needed income is transfered from savers to the banks and is not available to support consumption. This data graphically illustrates the deflationary nature of current Fed interest rate policies and why Janet Yellen and the Federal Open Market Committee need to raise interest rates soon. But when rates rise, the next phase of the economic crisis will begin.
In a paper published this month by Carmen Reinhart and Ken Rogoff, the authors argue that financial repression is a necessary part of the adjustment process for heavily indebted nations, even the advanced nations. The Guardian reports: “They say that if history is any guide countries will not be able to return to more sustainable levels of public debt through a combination of austerity and growth. They cite Europe, where the assumption is that normality can be restored by a combination of belt-tightening, forbearance and rising output, as an example of Panglossian thinking.”
http://www.theguardian.com/business/economics-blog/2013/nov/20/reinhart-...
Say Reinhart and Rogoff: "The claim is that advanced countries do not need to apply the standard toolkit used by emerging markets, including debt restructurings, higher inflation, capital controls and significant financial repression. Advanced countries do not resort to such gimmicks, policy makers say."
The Guardian: “Historically, this is poppycock according to Reinhart and Rogoff. Rich countries, when faced with high levels of debt in the past have been more than happy to default, inflate away their debts or indulge in financial repression (capping interest rates or putting pressure on savers to lend to the government).”
The current policy mix in the US certainly shows this tendency to resort to financial repression, but the real question is whether current Fed policy has not resulted in a deflationary trap, with falling income driving consumption, jobs and economic activity lower. Taking $100 billion in income away from savers each quarter does not seem to be a recipe for economic growth.
But as Reinhart and Rogoff document well, there is no easy solution available for the US, EU, Japan and other heavily indebted developed nations. Once interest rates start to rise, the necessity of debt restructuring in Europe, Japan and even the US will become more apparent. There is no free lunch. Either we kill growth via financial repression of savers or we embrace the painful process of debt restructuring for the major industrial nations.
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rationaldemocracy
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and how is the Internet and technology not a tangible asset? I guess if you are an overly negative and clinically unbalanced person than gold and silver may be the way to go but for people who have optimism in the future and specifically in a technologically progressive future its real hard to see the value in hard assets vs say, investing in innovation.
If preparing for the future would be as simple as buying metals than trust me, you would not be buying silver at today's prizes. Smart people understand that tech and optimism is the way forward and so they don't get involved with hoarding shiny rocks.
I really wish it was as simple as buying metals and then declaring yourself well prepared for the future but it's simply not the way the world works, of course, goldcore will fool folks into thinking that's exactly the way the world works because they sell this stuff.
And to think some people still don't believe there are no paid .gov shills trolling the web. I found two just in this articles comments. We must be doing something right. Or, maybe he forgot the </sarc> at the end?
Best article I've read in weeks. Retirees who were counting on at least 4% yield (and pensionplanms, etc.) are getting the Royal Screw Job without the Vaseline. How can they spend when they lose more and more purchasing power every day?
We are in a Deflationary Depression and it's only getting worse as savers and Middle Class are pounded by burdens such as Obamacare, internet sales taxes, increased postal rates, and so on.
"Financial repression" is the perfect description of the 0bozo admin economic plan.
It looks like the spread has seldom been wider.
The Banking sector is making more money than ever.
This is an engineered 'Crisis'.
We should hang the Bankers and the Politicians. ALL of them.
Look at the graph closely. The spread was $60B in 2001, widened to about $90B in 2007, and is now $100B, albeit at much lower absolute levels. The Fed really hasn't widened the spreads all that much - just cut the overall levels of interest rates across the board.
what about a debt jubilee? if the Fed can print the money & give it to big banks, why can't they print the money & give it to the citizens ? one of my friends purchased a house in Florida at the top of the bubble, paid over $400,000 & now he can't even list it at $200,000; in other words, he's stuck forever unless his mortgage loan is written down. & my niece is over $80,000 in student loan debt (scam to get all the kids into debt slavery) & can't find a job.......write it off, give her a clean slate and no more credit, either. End the Federal Reserve Bank.
IT'S OVER. NO MORE NATIONAL DEBT & NO MORE BORROWING MONEY FROM PRIVATE BANKERS & ENRICHING THEM WHILE THE CITIZENS OF THE COUNTRY BECOME IMPOVERISHED! CENTRAL BANKER SCAMMERS & SWINDLERS, NO MORE!
A debt jubilee is the only way out of this economic nightmare, but it will not happen unless we (the middle class) demand it. There is not one single national politician from either party who has let the words "debt jubilee" pass though their lips. If they did, their campaign finance spicket would run dry immediately.
We have national elections coming up in 2014. We should forcefully support candidates who explicitly push for a financial and economic reset. They may very well lose, TPTB have total control, but the conversation and ideas will have started. Don't be afraid to lose a battle to win the war.
It won't be easy. These bastards are like cockroaches.
http://m.nakedcapitalism.com/nakedcapitalism/#!/entry/michael-hudson-oligarchs-will-never-cancel-debts-we-owe-them,52997d80b7d8d24162b7a603
And we should forcefully NOT SUPPORT any candidate who is a lawyer.
this article in mindless garbage so you need to ignore it please! right now the USA is producing so much oil it has the capacity to bankrupt the State. In other words...sure.."screw savers." well...say hello to North Dakota...those are called PRODUCERS. This Government isn't going to confiscate that wealth...it has to have it "in the form of taxes" in order to pay for everything. Don't even get me started on natural gas...also illegal to export...and distillates...which ARE legal to export. and of course that is precisely what the USA is doing...on a truly gargantuan scale. You need to ignore this author...we're SWIMMING in dollars in the USA right now. Banks don't want to lend? Those that have have made a true killing here. At some point even the Government will get the memo and start "moving the assembly lines." I would not be surprised if the Federal Government started running surpluses next year however...nor would i be surprised if the dollar started to move noticeably higher next year as well. that might not lead to a major tax overhaul...but it could start paying down the debt on a very statistically significant scale. of course "you want to be the State with all the oil" etc to do that.
Either we kill growth via financial repression of savers or we embrace the painful process of debt restructuring for the major industrial nations. --C Whalen
That’s not the choice; the choice is whether the Fed is going to save the banks or the economy. And the indication has been that it is going to select the banks.
And only certain banks as well, the ones that can polish yellnanke's knob the best, see: Bear Stearns, WaMu...
i just realized that "Deflation" is not in the Zerohedge article keyword list above. This will not stand!
So what could be an out of the box plan? The whole system would have to be re-orgainized. The plan is this:
There has to be a debt-forgiveness jubilee. The govenrment has to stock up on food, and then dole that food out to keep people alive during the re-set period. All debts are cancelled. The TBTF banks are vaporized. Laws are passed that prohibit the practice of usury. Derviatives markets are outlawed, etc, etc.
Money is backed by tangible assets, productive capacity, and bank-notes are redeemable in PM's.
After the reset period, nations are placed back on a foundation of production, not debt and consumption, and something closer to a real (ie productive) economy can resume its existence.
Will this ever happen? No, not in the orderly fashion I've laid out. Debt forgiveness will occur through deflationary depression, bankruptancy, starvation, disease, war, and destruction. Millions of people will cease to exist. Those who remain will toil as slaves in totailitarian or despotic regimes. Since this is what we have to look forward to, I'm all for Ben dumping more hooch into the punchbowl. The longer this gets strung out, the more I can get ready and save my family, since society is doomed.
What Walen doesn't understand is what he's seeing before his own eyes.
The government and non Biggest Finance Capital corporate fronts are being buried in debt.
The only group whose debts are being zeroed out are the BFC corporate fronts.
The bailout is for them, not for us.
Henry Ford nailed it...
“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. The one aim of these financiers is world control by the creation of inextinguishable debt.”
~Henry Ford
It works like this:
If BFC's mega banking fronts, Including the Fed, lends society (and government is part of society) $20 @ 5% interest, in one year society owes BFC $21 due to a double entry bookkeeping adjustment that adds $1 interest liability to society's balance sheet and a $1 interest asset to BFC's balance sheet.
The balance sheet still balances at $21, but the power dynamic within that balance sheet has changed dramatically.
Society is forked. The lender, who is master over the servant, controls the money that society absolutely requires to avoid default and loss of their power plants, their water plants, their toll free roads and even their rain water, as evidenced in Bolivia.
It is all a fraud. A cruel hoax on a gullible society whose schooling was engineered by the same crowd that is bankrupting them.
Now, here's the kicker.
A "bailout" is equivalent to BFC lending $20 into existence, pocketing the $20 for its corporate fronts AND THEN SENDING THE $21 BILL TO SOCIETY IN A YEAR WHEN SOCIETY NEVER RECEIVED ANY OF THE MONEY!
This is real simple stuff, but very smart people can't seem to grasp the very simple fraud of this system. Either that or they are paid to keep lying to everyone. Or, perhaps, they are simply scared. Whatever.
Debt Money Tyranny
http://www.keepandshare.com/doc/4768883/debtmoneytyranny-6-1-pdf-60k?tr=77
Weapons of Mass Debt
http://www.keepandshare.com/doc/3324744/wmdebt-graph-3-79k?tr=77
Organic GDP Trend Analysis
http://www.keepandshare.com/doc/6458432/us-organic-gdp-trend-analysis-48...
which has already broken for the worse...
www.market-ticker.org/akcs-www?post=224642 (note, Denninger has his site down through 12/2/2013, but it will be back up soon enough).
Whalen, the OWNERS of the mega banks are making a play for neo fuedalist world control... Napoleon knew this, Henry Ford knew this and even insider historian Carroll Quigley knew this...
In addition to these pragmatic goals, the powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basle, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank, in the hands of men like Montagu Norman of the Bank of England, Benjamin Strong of the New York Federal Reserve Bank, Charles Rist of the Bank of France, and Hjalmar Schacht of the Reichsbank, sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world.
~Carroll Quigley, CFR Researcher, Georgetown University renown historian and Bill Clinton mentor
“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. The one aim of these financiers is world control by the creation of inextinguishable debt.”
~Henry Ford
“When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.”
? Napoleon Bonaparte
Here's a Robert Hemphill closer...
We are completely dependent on the commercial Banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the Banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon. ~Robert H. Hemphill, Credit Manager of the Federal Reserve Bank of Atlanta in the Great Depression, wrote in 1934Quite running interference for these criminals.
They won't save you, me or anyone else outside their clique - and if they havn't told you their evil plan you definitely are outside their clique. If they have, you will still likely have your Night of the Long Knives comeuppance.
When they are done looting society blind while offloading their debt onto society, they will then move into "Americans pay their debts" narrative, bankrupt much of us and seize our assets for themselves via their corporate fronts.
Those that resist forcefully will gain new understanding into why the government is buying 100s of millions of hollow points for DHS and training to not hesitate when shooting children, pregnant women and grandpa.
http://communities.washingtontimes.com/neighborhood/high-tide-and-turn/2...
"In a paper published this month by Carmen Reinhart and Ken Rogoff, the authors argue that financial repression is a necessary part of the adjustment process for heavily indebted nations, even the advanced nations."
So where is this financial repression of bankers? Bank stocks are going up, not down.
JP Morgan said, "every man has two reasons for doing soemthing: the good reason and the real reason."
Whalen is out pimping the "good reason."
The problem is that it isn't the "real reason."
The real reason is that the international banking cartel is setting up an authoritarian, feudalist system and they want to impoverish the rest of us who might be able to resist their fraudulent debt money tyranny when it starts to asset strip society in earnest.
Alas, the problem is more systemic than this article maintains. As if giving savers a better return will fix anything! If interest rates are raised, the nation- er, the entire planet- will be plunged into a deflationary depression as the interest rate will crush the debt-is-money system with a financial pressure greater than that at the bottom of the Mariana Trench. This crushing pressure is called incipient bankruptancy, which is the default reality for our planet. If interest rates go up, millions of borderline home owners go belly up and walk away from their cardboard and styrofoam tract homes. Home prices plummet, throwing pressure on commercial real estate.
With the real estate market a smoking ruin, industry begins laying off in droves. Consumer markets collapse, driving even more people oput of work, and the next wave of bankruptancy is the manufacturing sector. Of course, when this occurs, the stock market implodes with a great heaving sigh, and what was too big to fail when the printing press was running is too big to exist when interest rates go up even by one or two percent.
What is RC Whalen drinking? Koolaid? Fer fuck's sake, let's ride this thing as long as possible. Of course the crash is inevitable. Bernanke is a survivor. He isn't trying to help you or me, but his kick the can policy is the only workable one we have, inside the box. Why would anyone want to hasten the day of reckoning?
Because there are a few people around who know that sooner is better than later and that a controlled implosion is better than an unplanned explosion. US history pre-1929 shows us the same. Short and sharp and get I over with now, but we live in a nation (world) of fear and whimpishness. We used to be lead by mature people making adult decisions. Not so much anymore.
Sort of like a regular controlled burn of forest tinder is much better than the 100 year forest fire inferno.
We live in a world of fear and wimpishness because there is 81 years of dry tinder that built up since the last implosion, and they know how bad it was in 1932. They fear the next time will make the 1932 event look tiny in comparison - that the event may be non-survivable.
Excellent article.
ZIRP without organized bankruptcy for the insolvent also leads to large tax increases on the populace, furthering economic decline.
I guess the Harvard-Stupid can't see that.
fuck it im gettin drunk today and ride 4 wheelers and shoot guns. No sense sitting around waiting for our fucktard leaders to get more fucktard have fun while you can. And who says mowing down zombies won't be fun? Sounds like free dog food to me.
Banks charge 18% for credit card interest, and pay depositors nothing. How is that not enough for the banks? Larry Summers calls for negative rate. if banks charge depositors for having bank accounts, then everyone should get their money out and put in a safe box or bury under the mattress. Is that not a bank run?
Yea go into a bank and ask for a loan, ANY loan, at the same interest rates that they pay with their money market accounts.
I bet they wont be able to hold back their laughter.
holiday chat included season of banker bounty...
turkeys baked...
Financial repression in Cyprus forcibly converted a huge chunk of saver's account balances into (worthless) stock of the Bank. And basically there was no reaction or penalty from Savers when it happened. Which certainly was noted around the world. A template for the future, and theft from Savers has only just begun. Governments will grab whatever assets they can get their hands on in an effort to forestall a collapse, but it will only just extend the process. Not change the ultimate outcome.
The only safe move is not to play.
Hard assets outside the system ,and wait.Not like you are losing interest.
I don't know how anybody in this 'market' sleeps at night.i will not even
play options, as the rules will changed at a whim in favor of TPTB.
I am certain Carmen is a she, but I could be wrong.
Savers are now considered heretics and subversives.
And if you try to withdraw your cash you are stamped a "trouble maker." Literally.
The only acceptable behavior to them is for everyone to buy stocks in internet companies that generate zero earnings.
And they want all of us to wonder why there is a mania in Bitcoins.
As soon as Walmart figures out how to attract hedgefund managers into it's aisles everything will be OK.
don't care how many up arrows you get...you're still penning a false narrative now Banzai. "the means of redistribution" are the problem and the easiest solution is to send everyone a check in the mail just for being a US citizen. Outside of self-funding Agencies and the War Department...just stop spending "in complicated ways." the easiest way is to give every American an EBT card and deposit a check into their bank account every month. 2000 a month for every individual with added incentives for being married and having kids should do it. everything else should be eliminated. no social security, no Medicare, no Medicaid....nothing save for...again...the War Department and self funding Agencies "and a check for flag waving." (provided you mean it of course.)
The economic model for the past 5 years has been to punish the savers and reward the borrowers. There is something terribly wrong with this state of affairs , which is leading societies down the wrong path of over indebtedness. Like with QE , this will have many ugly unintended consequences for many years to come.
exactly how debt created money works. incentivize debt to idiots that sign their life to servatude to the "man" or WO"MAN". fucken"m"n "n". all of the money changer-fuckem.
debt free and free to do what the fuck i want...
i really dont care whether i get 1 percent return or 10 percent, BECAUSE FREEDOM DOESN'T HAVE PRICE OR RETURN ON INVESTMENT.
OH, DID I SAY FUCK EM?
Let me 2nd that thought. Fuck em.
3rd. Fak em
interest paid to depositors down by 90% on 2008... years of reading ZH and i thought i was immune to shock, but fuck me Im gobsmacked
Why surprised? Did you think it was 99%?
this graphic tells us why the banks are very rich on a day to day basis all the while they are drowning in debased balance sheets (If you include the off BS shadow banking derivative gravy).
Whereas on the macro economic scale the CB pump over 150 billion/month collectively into the pot to deleverage their BS and to provide additional liquidity which is all (85%) used for SPECULATIVE CARRy TRADES...
Can you be more gluttonous and corrupt than the TBTF are collecively today in the light of all this factual history of their accumulative criminal and irresponsible guilt?
And as if the Governments don't know it!
It will all come to POP when interest rates rise above 3.5 % in Fed and when the world realises that there is no real growth possible in first world as labour and Oil are still too expensive.
Foxconn pays today a chinese worker in Shanghai 200$/month and wants to pay 160$/month in Ghizou, Indonesia or Vietnam...With wages like that you won't see run of the mill factories coming back to first world.
The Oligarchy will stay in third world production mode and $ reserve will go POP, like it or not.
When? 2016-2017, with a new Potus sounds logical. In the meantime watch the Titanic roll in the doldrums.
if the Government didn't know it before they know it now. In other words "in the absence of real wealth creation you are correct." However...money is being minted on such a grand scale in the USA right now...well, let's just say it's a good time to be an Administrator of a Federal Agency. this is not "going to be online"...we're well past that now...we ARE online now...so the States that are aboard the Gravy Train will be attracting "real 'mericans" and "the digital domain" while the "foi gras" struggles with "too much overhead and way too much complexity." will people still pay a premium for "the product"? sure. but in the end they'll actually BE where they're best treated. in other words "zero taxes, zero regulations, huge profits, de-minimus Government" etc. The Titanic is but a cork in Ocean compared to what we build and run regularly now.
@Zerohedge @dirtytrainers China is shorting Uncle Sam Inc....as are the rest of the briiics......@PetroDollar is Toast...that also means @GE
if correct, batten down everything of value and load up...
zombies a comin.
You are correct about the gender of the named individual, WB7.
Could be a typo, or it could be that Whalen is playing on the "Messrs. Yellen and Reinhart" meme.
In any case, you are also correct about the demonizing of fiscal prudence. If they don't get the velocity of money to explode soon, the bubble bursts.
Tangible assets, bitchez!
and how is the Internet and technology not a tangible asset? I guess if you are an overly negative and clinically unbalanced person than gold and silver may be the way to go but for people who have optimism in the future and specifically in a technologically progressive future its real hard to see the value in hard assets vs say, investing in innovation.
If preparing for the future would be as simple as buying metals than trust me, you would not be buying silver at today's prizes. Smart people understand that tech and optimism is the way forward and so they don't get involved with hoarding shiny rocks.
I really wish it was as simple as buying metals and then declaring yourself well prepared for the future but it's simply not the way the world works, of course, goldcore will fool folks into thinking that's exactly the way the world works because they sell this stuff.
Hey IRRATIONAL DICKTATER ASSHOLE. You like setting up Straw Men Arguments? Then GO ELSEWHERE. Most Internet Companies DO NOT PRODUCE EARNINGS to justify the price of their Stock. That is what Williambanzai7 wrote...and CORRECTLY SO..
It is a FUCKING BUBBLE.
Of course your post SERVES TO DISTRACT from the ISSUE that Low Interest Rates are STEALING WEALTH FROM SAVERS of Fiat Currency.
Go autofellate, That means SUCK YOUR OWN DICK, as you are lacking a SPINE, and are capable.
If you were HONEST then I'd treat you with RESPECT. Again you just proved yourself unworthy of RESPECT. How can someone RESPECT a THIEF or someone that SUPPORTS THEFT?
Low Interest Rates and ANY INFLATION is STEALING from those whom were prudent and SAVED. I will be very pleased when the entire House of Cards COLLAPSES, pal.
Apparently you're not a big fan of the "give me your gold for money" Venezuela deal from GS either. You never know 'till you ask though!
rationaldemocracy - Member for: 7 weeks 2 days
Hi Chris,
Is it tough to talk with Larry Fink's balls in your mouth?
Hi Chris,
I'm sure you are doing this on behalf of your espressed lover Jamie Dimon. I can't believe anything you say now.
(Nuclear) Bomb the Federal Reserve. End of problem. No more debt. Then force our gagged Treasury Department to print money interest free and reinject it into the base of the economic pyramid.
Also, you Trolls can go choke on your own vomit you scum sucking maggots.