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Business/Finance See other Business/Finance Articles Title: SATYAJIT DAS: Talks Financial Repression & “The Age of Stagnation” SATYAJIT DAS: Talks Financial Repression & “The Age of Stagnation” Submitted by IWB, on May 13th, 2016 by FRA FRA Co-founder Gordon T. Long is joined by Satyajit Das in discussing the consequences of financial repression and current policy making, along with the effects of the Chinese economy. SATYAJIT DAS is an internationally respected expert in finance, with over 35 years’ experience. Das presciently anticipated many aspects of the global financial crisis in 2006. He subsequently proved accurate in his warnings about the ineffectiveness of policy responses and the risk of low growth, sovereign debt problems (anticipating the restructuring of Greek debt), and the increasing problems of China and emerging economies. In 2014 Bloomberg nominated him as one of the fifty most influential financial thinkers in the world. Mr. Das is the author of a number of key reference works on derivatives and risk management. Das is the author of two international bestsellers, Traders, Guns & Money (2006) and Extreme Money (2011). His latest book is A Banquet of Consequences (2015) (published in North America as Age of Stagnation). He was featured in Charles Ferguson’s 2010 Oscar-winning documentary Inside Job, the 2012 PBS Frontline series Money, Power & Wall Street, the 2009 BBC TV documentary Tricks with Risk, and the 2015 German film Who’s Saving Whom. VIEWS ON FINANCIAL REPRESSION Slide1It started around 2008 and prices relate to debt. Fundamentally, the way the surprises were dealt with were in a very old fashioned way to grow and inflate their way out of debt. As we know, this process hasn’t really worked, and there’s really only two choices left. One of them is to default, which is hugely unpalatable because writing off peoples’ savings like that has consequences for future consumption, and a huge amount of wealth loss in the world. The other option is financial repression, which is a way of managing excess debt. The most common way is by very high levels of taxation. “I don’t think people, when talking about financial repression, are talking about taxation as being something that shouldn’t happen.” There’s obviously a point of taxation which is to run social services and infrastructure and government, but at some point under the condition of high debt it starts to bring taxation rates up for the simple reason of using the state to absorb everyone’s debt, in other words socialize the debt and then try to use the taxes to pay it off. That can be hugely unproductive for the economy but we’re starting to see it happen around the world. The next stage is what we call financial repression, where we start to devalue the debt. The most important way we can see that is through a period of low interest rates. “People forget that since 2008, we’ve had over 600 interest rate cuts globally. Interest rates are pretty much around zero around the world.” Slide2Roughly 30% of global government bonds are trading at negative yields. Either you have nominal yields that are positive but below the rate of inflation to use that to try and ease the purchasing power of debt. Alternatively as we’re now finding that because inflation is low and the debt levels are so high, we’ve gone to negative interest rates. There’s something perverse about negative interest rates because people get very technical about it. This is actually a way of writing down the debt, and are very dangerous, as the market’s reaction to the negative interest rates in Japan and Europe have proven. Firstly, there’s no real proof that these types of policies are going to create growth or inflation. They’ve been put in place to write down the debt. First we have -5% interest rates, and after ten years we’ve written off half the debt. That’s now a sort of stealth tactic the central banks and policy makers have put in place. Everybody knows that they said, look, in the next crisis we’re going to cut interest rates and interest rates are so low that we’re going to have to go to negative territory, but we all know that if we go to negative territory people are just going to take money out of the bank and just hold the cash. Poster Comment: Negative rates are bad for all. Take some cash out of the banks as soon as possible. Post Comment Private Reply Ignore Thread
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