Authored by Nick Giambruno via InternationalMan.com,
When I first heard the term “financial repression,” I thought it had to be a joke.
Why would governments and central banks use a term with such a negative connotation? Even people who are financially illiterate can understand that financial repression is a bad thing.
Simply put, financial repression is a strategy governments use to reduce their debt burden by manipulating interest rates below inflation.
It allows them to borrow in dollars and repay in dimes.
Here’s how the IMF describes it, emphasis mine:
“Financial repression includes directed lending to government by captive domestic audiences (such as pension funds), explicit or implicit caps on interest rates, regulations of cross-border capital movements, and (generally) a tighter connection between government and banks.”
More from the IMF:
“High public debt often produces the drama of default and restructuring.
But debt is also reduced through financial repression, a tax on bondholders and savers via negative or below-market real interest rates.
After WWII, capital controls and regulatory restrictions created a captive audience for government debt, limiting tax-base erosion.
Financial repression is most successful in liquidating debt when accompanied by inflation.”
For exampl
