Carmen Reinhart: Financial repression

“These crises are really a form of domestic default that governments employ in countries where financial repression is a major form of taxation. Under financial repression, banks are vehicles that allow governments to squeeze more indirect tax revenue from citizens by monopolizing the entire savings and payments system, not simply currency. Governments force local residents to save in banks by giving them few, if any, other options. They then stuff debt into the banks via reserve requirements and other devices. This allows the government to finance a part of its debt at a very low interest rate; financial repression thus constitutes a form of taxation. Citizens put money into banks because there are few other safe places for their savings. Governments, in turn, pass regulations and restrictions to force the banks to relend the money to fund public debt….”

~ Carmen M. Reinhart, This Time Is Different: Eight Centuries of Financial Folly

Carmen Reinhart: Financial Repression – WSJ

Carmen Reinhart marks the rise of financial repression. “Faced with a private and public domestic debt overhang of historic proportions, policy makers will be preoccupied with debt reduction, debt management, and, in general, efforts to keep debt-servicing costs manageable. In this setting, financial repression in its many guises with its dual aims of keeping interest rates low and creating or maintaining captive domestic audiences will probably find renewed favor and will likely be with us for a long time.”

via Secondary Sources: Financial Repression, Jobs and Growth, Daylight Saving Scam – Real Time Economics – WSJ.