Is financial repression victimtless?

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The SMH has picked up a gleeful (or perhaps ironic?) article by Ambrose Evans-Pritchard endorsing financial repression:

Britain has just carried out one of the greatest victimless crimes in modern financial history. It is in effect wiping out public debt worth 20 per cent to 25 per cent of GDP – on the sly – without inflicting serious macroeconomic damage or frightening global bond markets.

Governor Mark Carney more or less acknowledged that the Bank of England will never reverse its £375 billion of Gilts [UK government bonds] purchases. Quite right too.

…Can there really be such a thing as a free lunch in economics? We will never be able to prove it either way, but on balance it looks like the answer is yes.

I have to admire my friends in France, Italy, and Spain for sweating it out under ECB tutelage with scarcely a word of protest, but the result is that their public debt ratios are rising at a galloping rate despite deep fiscal austerity. Their jobless rates have gone through the roof.

While it’s fair enough to see a little patriotism at work for Evans-Pritchard in his European context, and I sure agree that austerity ain’t the way to go, describing QE as “victimless” is a little rich (a lot rich , actually, if you’re a boom/bust speculator).

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By creating a negative real interest rate, quantitative easing persecutes the savers, the same ones that have been prudent during the previous cycle as party-animals blew up the system, necessitating massive government bailouts and quantitative easing in the first place.

Not only that, QE inflates asset prices, bailing out the same speculative dills and delivering the prudent a second slap in the face, as well as setting up the next collapse.

Sure, government debt gets inflated away but it’s also a cycle to nowhere in which public debt will jump again with the next bailout, it’s a serious blow to meritocracy, productive capitalism and usually inter-generational equity as well, and it elevates the worst behaviour and punishes the best.

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No doubt the Sydney Morning Domain would like us to think of printing money as perfectly innocent, and it may be that it’s the best of a series of bad choices, but one thing that it most definitely is not is victimless.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.