Special Guest: Daniel R. Amerman is a financial futurist, author, speaker, and consultant with over 20 years of financial industry experience. He is a Chartered Financial Analyst (CFA), and holds MBA and BSBA degrees in Finance from the University of Missouri. He has spent seven years developing a large, unique and intertwined body of work, that is devoted to using the foundation principles of economics and finance to try to understand the retirement of the Baby Boom from the perspective of the people who will be paying for it.
42 Minutes
Is there a "Back Door" method for the government to pay down the federal debt using private savings?
Daniel Amerman says emphatically, YES! It is called FINANCIAL REPRESSION, though as a former banker Amerman likes to think of it in more accounting terms like liabilities and assets.
In practice there are four primary methods which a nation can use to pay down excessive debts incurred to support spendthrift habits and political obligations.
- AUSTERITY: Decades of Austerity,
- DEFAULT: Defaulting on government debts,
- DEBASEMENT: Inflating away the value of the debt though slashing the value of the currency,
- POLICY: Process of Financial Repression
Financial Repression is a subtle method of taking vast sums of private wealth with no political consequences. It has strong advantages for the government:
- It works in practice and has been used successfully before (1945 - 1970),
- Almost No Political Damage,
Financial Repression uses a combination of INFLATION and government control of INTEREST RATES in an environment of CAPITAL CONTROLS to CONFISCATE much of the PURCHASING POWER of the nation's private savings.
The government methodically uses regulations over a period of many years to force a negative rate of return onto investors (in inflation adjusted terms) so that the real wealth of savers shrinks by an average of 3-4% per year.
A Sheep Shearing Structure
The characteristics of postwar era "Sheep Sheering" are:
- Inflation,
- Government control of Interest Rates to guarantee Negative Real Rates of Return,
- The Funding of government debt by financial institutions,
- Capital controls,
- Discouragement of Precious Metals investment.
If you real want to understand FINANCIAL REPRESSION, this is where you start.
