Special Guest: Daniel R. Amerman is a
financial futurist, author, speaker, and consultant with over 20 years of
financial industry experience. He is a Chartered Financial Analyst (CFA), and
holds MBA and BSBA degrees in Finance from the University of Missouri. He has
spent seven years developing a large, unique and intertwined body of work,
that is devoted to using the foundation principles of economics and finance
to try to understand the retirement of the Baby Boom from the perspective of
the people who will be paying for it.
42 Minutes
Is
there a "Back Door" method for the government to pay down the
federal debt using private savings?
Daniel
Amerman says emphatically, YES! It is called FINANCIAL REPRESSION, though as
a former banker Amerman likes to think of it in more accounting terms like
liabilities and assets.
In
practice there are four primary methods which a nation can use to pay down
excessive debts incurred to support spendthrift habits and political
obligations.
- AUSTERITY: Decades of Austerity,
- DEFAULT: Defaulting on government debts,
- DEBASEMENT: Inflating away the value of the
debt though slashing the value of the currency,
- POLICY: Process of Financial Repression
Financial
Repression is a subtle method of taking vast sums of private wealth with no
political consequences. It has strong advantages for the government:
- It works in practice and has been used
successfully before (1945 - 1970),
- Almost No Political Damage,
Financial Repression uses a combination of INFLATION and
government control of INTEREST RATES in an environment of CAPITAL CONTROLS to
CONFISCATE much of the PURCHASING POWER of the nation's private savings.
The
government methodically uses regulations over a period of many years to force
a negative rate of return onto investors (in inflation adjusted terms) so
that the real wealth of savers shrinks by an average of 3-4% per year.
A Sheep Shearing Structure
The
characteristics of postwar era "Sheep Sheering" are:
- Inflation,
- Government control of Interest Rates to
guarantee Negative Real Rates of Return,
- The Funding of government debt by financial
institutions,
- Capital controls,
- Discouragement of Precious Metals investment.
If you
real want to understand FINANCIAL REPRESSION, this is where you start.
