Why do the People of the UK Accept Financial Repression?

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It is amusing yet disturbing to see that the UKs media fails to mention the public debt of the UK but refers only to GDP and inflation figures, the ‘everything is awesome’ meme. Both of these numbers are manipulated but asking how the GDP deflator number is derived, what the actual number is and why does it increase GDP and lower inflation? This would be the start of a discussion.

When governments find themselves in a situation where they cannot pay off their accrued debt, they have a number of plays open to them. They will not relinquish power without a good scrap.

1.The first play is hyperinflation and this destroys the currency but also the debt, not ideal if you wish to remain in control.

2. The second is default, also known as the Argentinian option but this eventually leads to the destruction of the currency.

3. The third option is austerity, which is parroted by the political parties as necessary but if we have had austerity for 5 years why has public debt gone up by 80% since the coalition came to power? Currently standing at £1.4 Trillion with £1 billion per week being used to fund interest payments on the debt, £52 billion per year and rising. Austerity is a lie, it’s never worked but we’re all in this together, well most of us as you will see. As public debt has increased so much, interest rates are not going to rise, it’s counterintuitive and illogical for government to do so, they have another option.

4. The fourth and my personal favourite is financial repression, sounds like fun which it is. Repression hits both savers and wage earners, if inflation is higher than interest rates then savers lose out. If inflation is higher than wage increases, the wage earner loses out. If both of these scenarios play out, savers and wage earners lose out and those that hold the debt benefit. Continue reading

It’s Time to come Clean about our National Debt

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Courtesy of Liam Halligan @ The Telegraph:

Most pundits assume the general election will be fought against a strong economic backdrop. The Conservatives certainly hope that buoyant consumer sentiment, including continued rock-bottom interest rates and stable financial markets, will help them secure victory, and even an overall majority, in May 2015.
After David Cameron’s conference speech in Birmingham earlier this month, complete with a promised £7bn income tax cut, some 39pc of voters said it was the Tories “they most trust to manage the economy”, compared with just 19pc backing Labour.

It was in the afterglow of that speech that the Tories chalked up an overall poll lead for the first time in more than two years. A strong economy, then, will clearly be front-and-centre in any successful Conservative general election campaign.

It’s politically significant, then, that public sector borrowing figures released on Tuesday were truly shocking – so bad, that further pre-election promises of tax cuts are now much less likely. Such promises, as we just saw, are vital when it comes to keeping the Government’s electoral opponents at bay. If such terrible figures continue into the coming months, the Tories could even lose their reputation for superior economic management.

The economy is growing at 0.7pc per quarter, we learnt on Friday, far faster than last year. Yet public sector net borrowing over the first half of 2014-15 was 10pc higher than the same period in 2013-14. Borrowing in September alone was £12bn, a staggering 15pc up on the same month the year before. While tax receipts were up 3.1pc, revenue growth was outstripped by even higher spending. For all the talk of “austerity”, central government expenditure in September was 5.4pc above that during the same month a year ago, as welfare payments spiralled.

The Government, having already borrowed £58bn between April and September, is almost certain to miss its £96bn annual target by a mile. It’s now all but certain the UK will post a sixth successive year of triple-digit, billion-pound deficits, five of them under the Tories. Osborne has borrowed more in his half-decade as Chancellor than his predecessor Gordon Brown did during a decade at the Treasury. The Conservatives’ 2010 “emergency Budget” said the books would be balanced by next year. Official projections now suggest that won’t happen until 2018-19.

Continue reading

Will Our Private Savings Be Sacrificed To Pay Down The Public Debt?

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Courtesy of Adam Taggert @ Peak Prosperity:

Recently, an article by Daniel Amerman caught our attention. Titled Is There A “Back Door” Method For The Government To Pay Down The Federal Debt Using Private Savings?, it details the process known as financial repression, where sovereign debts are slowly paid off by syphoning private savings from an unaware populace.

In this week’s podcast, Chris discusses the mechanics of the process, as well as its probability, with Dan:

To understand financial repression, we have to understand that we’ve been there before. Many nations have gone through periods in the past where they’ve had very high levels of government debt. And there are four traditional ways of dealing with that.

One of them is austerity. Everyone understands that. You raise the tax rates. You lower the government spending. This is a painful choice. It can last for decades. And what do you think the voters think about that?

There is another option and this we can call this the Argentina option. And that’s defaulting on government debts. It’s radical. Everybody understands it. How do the voters feel about it?

There is a third option is rapidly destroying the value of currency. Creating high rates of inflation that very quickly wipe out the true value of a national debt. But that also wipes out the true value of everyone else’s savings and salaries and so forth. It is such an obvious process you can’t really hide it. So how do the voters feel about that?

Those first three – they all work. They’ve all been done before. But they’re all very painful and make the voters very angry.

Now there is a fourth way of doing this. There’s nothing controversial about its existence; it’s not the slightest bit controversial for professional economists or people who have studied economics extensively. It’s financial repression. And it works. It’s what the advanced western nations did after World War II. It was a process that took 25 to 30 years, depending on the country. The West went from an average debt as a percentage of national economy from over 90% to under 30%. So we know it works in practice. Continue reading