Financial repression

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The technical term financial repression or financial repression ( english financial repression , German, mutatis mutandis, creeping austerity loss ) refers to a state interference, especially through the Central Bank , mainly using the interest rates on the financial markets in a way that savers or money investors suffer creeping in favor of the state suffer. Followed about the central bank a low interest rate policy , private investors may at banks do not demand higher interest on their investments, because banks can refinance cheaper than the central bank.

features

The German Council of Economic Experts sees the measures taken by the Federal Reserve and the Bank of England in the context of quantitative easing as a "financial repression" in which government bonds are covertly redistributed from the holders in favor of the state. This does not lead to the effects that, according to the traditional “ crowding-out ” theory, would be expected, namely that rising public debt would have to cause interest rates to rise.

The English term "financial repression" goes back to the US economists Edward S. Shaw and Ronald McKinnon . They referred to general state measures to regulate the markets as “financial repression”, which divert funds from private individuals to the state.

The economists Carmen Reinhart and Belen Sbrancia characterized “financial repression” by the following characteristics:
1. Interest rates on national debt are capped .
2. Nationalization of banks, which at the same time prevents other banks from entering the market.
3. National banks are encouraged to buy bonds from their own state or to hold them as reserves.
4. Control of capital movements

The background to the discussion about financial repression is that in the wake of the financial crisis from 2007 and the euro crisis , the central banks took major supportive measures, but these did not lead to a greater rise in inflation . However, savers can only invest money at very low interest rates or are content with negative interest rates , whereby in addition to monetary policy, factors such as demand and supply for capital (e.g. the lower demand for capital due to the low investment and low capacity utilization during the poor economic situation in Europe) have an impact on interest rates. Historically, however, phases in which no inflation-compensating interest was paid on savings balances are not uncommon. B. in the 1970s, early 1990s and 2000s.

criticism

The criticism of this point of view emphasizes that investors (i.e. capital seekers) are then so favored over savers that a boom in the demand for capital goods would have to be triggered. This boom should then lead to inflation, which then automatically forces the central banks to raise interest rates again. Since this boom and the associated inflation have not yet occurred, this is a sign that the low interest rates are obviously necessary to restore the balance on the capital market - i.e. to balance the supply of capital (by savers) with the demand for capital (by investors and the state). From this point of view, the high government debt ratios tend to ensure that real interest rates do not fall to an even lower level. According to this point of view, the expression “financial repression” arises rather from the phenomenon which Keynes had called the “idea of ​​a normal interest rate” - the idea that an investor has a right to receive a certain (positive) real rate of return, even if that Demand for capital at this rate is not sufficient to outweigh the supply of capital.

The other side may object that although there is no inflation on the goods market, there is inflation on the so-called asset markets (stock markets, real estate markets, markets for gold and other raw materials) - this is also referred to as the formation of bubbles . The asset markets, however, do not have a demand-driven effect, so they do not contribute to the capital market being balanced (i.e. that applies: savings = investments) and therefore it is important for the central bank to view inflation on the goods market as the inflation according to which it is its own Monetary policy should align. The experiences of 1928 have shown how devastating it can be if the central bank raises interest rates in the middle of a deflationary phase (on the goods market) because it wants to counteract a developing stock bubble.

See also

Web links

Individual evidence

  1. ↑ Council of Experts for the Assessment of Overall Economic Development Annual Report 2012/13, November 2012, p. 84 (point 130).
  2. ↑ Shaw, Edward S. Financial Deepening in Economic Development . New York: Oxford University Press, 1973; McKinnon, Ronald I. Money and Capital in Economic Development . Washington DC: Brookings Institute, 1973
  3. ↑ Carmen Reinhart / M. Belen Sbrancia, The Liquidation of Government Debt , 2011 (PDF; 276 kB)
  4. ↑ Fabian Fritzsche: The latest ECB interest rate decision - or: Much Ado About Nothing , June 27, 2014
  5. ↑ Mark Schieritz: The Myth of the Expropriation of Savers , Die Zeit, Herdentrieb, July 3, 2014 ( historical data from the Bundesbank's EMU interest rate statistics )
  6. ↑ cf. Volker Caspari: John Maynard Keynes (1883-1946) . In: Heinz D. Kurz (eds.): Classics of economic thought 2. From Vilfredo Pareto to Amartya Sen . Munich 2009, p. 168. “Inflation, ie a sustained rise in the price level, is [according to Keynes] explained by the fact that investments exceed voluntary savings. The increased overall economic demand is causing prices to rise across the board [...]. "
  7. ↑ cf. Paul Krugman's view on: Secular Stagnation, Coalmines, Bubbles, and Larry Summers , The New York Times, November 16, 2013, accessed November 28, 2013: “[…] a situation in which the 'natural' rate of interest - the rate at which desired savings and desired investment would be equal at full employment - is negative. […] When looking forward you have to regard the liquidity trap not as an exceptional state of affairs but as the new normal. ”See also: Larry Summers at IMF Economic Forum, Nov. 8 , YouTube, published on November 8, 2013 , accessed on November 28, 2013: Larry Summers says here: "imagine a situation where natural and equilibrium interest rate have fallen significantly below zero."
  8. ↑ cf. Milton Friedman, Anna J. Schwartz: A Monetary History Of The United States 1867-1960 . Princeton 1963.
  9. ↑ cf. Hamilton, James: Monetary Factors in the Great Depression, in: Journal of Monetary Economics, 19 (1987), pp. 145-169.