Andrew
Sheng has spent his career in Asia as a central banker and regulator. He
summarizes the current global situation as developed economies simply
"kicking the can down the road" to avoid the painful and inevitable
structural changes that must lie ahead. "There are no free lunches.
Avoidance will only make it more expenses and painful later on!" He
quotes former Treasury Secretary Larry Summers on this subject; "do you
want your teeth pulled out slowly or very quickly?" Sheng concludes
"we are going to have a long tooth ack for a very long time to
come!"
Financial Repression
Sheng
describes what he refers to as the "Financial Repression Tax":
"Governments (via regulated banks) will pay
depositors very low rates, sometimes below inflation rates in order to fund
the budget. The result is what is known as a Financial Repression Tax. This
represses the financial system. The biggest payers of the Financial
Repression Tax become the pension funds, insurance companies and long term
savers."
"Besides the government tax, this effectively also
allows the rich & privileged to borrow from the poor! Rich countries are
borrowing from the poorer countries"
Avoiding Day of Inevitability of Structural Adjustment
"As long as central bankers are printing we have a
'paper economy' not a real economy. That is where Financial Repression really
harms the system"
Source of Growing Global Inequality
Sheng
feels strongly that the inevitable outcome of broad based Financial
Repression is and has become global inequality. " Quantitative Easing and the 'leveraged play' around
the world is worsening inequality ".
The Market is Now Policy Driven
Sheng
also believes the free market is presently not allowed to operate. Markets
are highly distorted from trillions of dollars of 'pumping'.
"People
equate finance with debt. Debt is about risk shifting and not about risk
sharing! We presently have things backward. If you think of the real economy
as the horse, and finance as the cart; what we have today is the cart in
front of the horse!"
Consequences of Financial Repression Policies
Andrew
Sheng believes we are headed for another crisis. Common sense could help fix
the problems but he feels common sense appears not to be so common,
especially when politics in involved.
This
interview touches a broad range of the fallout from Financial Repression;
from how the US Fed is now locked into low interest rates, the 'hot money' US
Dollar Carry Trade and why lenders are more concerned about balance sheet
repair than investment.
Video: Finanical Repression Authority with Andrew Sheng
Published
12-11-14
29 Minutes
