Why Rich-Poor Gap will Continue to Grow: Financial Repression

Financial Repression. This policy combines negative real interest rates with various forms of capital controls and tax policy to assure that nobody can evade it.

Obviously this is not fair, nor is it in alignment with our national narrative of prudence and hard work being rewarded because, truth be told, it rewards the profligate and those who produce nothing of real value but can play the game of high finance well. Yet here we are without any better options before us, and so we reluctantly chose Financial Repression.

One other distasteful ‘feature’ of the program of financial repression we’ve been putting you all through is that the rich get richer. Until or unless there is a massive change to the taxation and wealth re-distribution programs of the federal government, the Federal Reserve’s program of Financial Repression will continue to deliver an ever-larger gap between the wealthy and everyone else.

Such is the nature of the compounding function combined with the inequity of who gets first access to the newly created funds we make available in order to drive the interest rate curve into negative territory.

The key part of financial repression is that the elites including the US government and the wealthiest banks are given access to 0% interest rates (or negative interest rates in this case). With first access to newly issued money at 0% to negative interest rates get "free" financial wealth, while everyone else subsidizes them by accepting that newly created money. That would be the US government and all the big banks. Everyone else is left as an unwitting subsidizer of their extreme waste.

But this is not crony capitalism. Capitalism is the private ownership of the means of production. Communism is the public ownership of the means of production. Government ownership over the money system is a feature of communism, so to that end the US has never been fully capitalist but was mostly capitalist at one point. The US government delegates control over the US dollar to a corporation. That happened in 1913. A quasi-government corporation with control over the money supply is a defining feature of fascism. Of course there are many aspects to a government, so one component being fascist does not make the entire government fascist.

It was not until 1971 with the ending of the gold standard, that capitalism entered a death spiral to such a degree that the US and most modern governments are not capitalist at all and have become mixed economies in most Western countries. After that point, all corporations and governments rapidly spiraled upwards in size. This is cronyism... but a proper name for our new government systems in western countries, especially Greece, Italy, and Portugal because they are as mixed as one can get with 50/50 blend of government and private controls of the means of production, is fascism.

The most mixed economies are Italy, Portugul, Greece. Those are the countries doing terribly. My own studies have found that purely communist countries fared better than mixed economies. For example, Libya under Gaddafi included a provision that newly married couples would receive $50,000 in US dollar terms for their own house. That would be a feature of communism where government places great control over the means of production of housing. Libya was in good shape prior to its rape by the US and other "more civilized" governments. In my assessment capitalism and to a smaller degree strong communism work as financial systems, but a mixed economy is a damaging and bad system in practice. From my own moral perspective only capitalism is moral because it avoids taking away people's property without their permission and also provides freedom and liberty in other respects. Libya for example was not a democracy prior to its recent rape by the USA even though it was generally communist.

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a reply to: wayforward

The problem here is individuals thinking they have the game beat, but not understanding the macro-scale consequences of their actions. That's the situation you have with these people borrowing money at very low interest rates, and giving it back (remember the dark secret, money is created as debt) The macro-scale effect of this out of control inflation in the US, and the weakening of this country in relation to others.

I'm a free market guy, I love the promise of liberty, because I believe people for the most part are good. But the fact is any of these communist states are at a supreme advantage in this game: They can create money to achieve a long term goal, while America has no long term goal, only the temporary enrichment of a few giggling idiots who's only goal is to game the system until they die, and let the devil take what follows. The greatest Advocates of the communist cause in action are on Wall Street.

But we'll see. Its a new world we're in, with all this technology. This country has done damn well, going 250 years on the vision of the founders. The future may take new vision, its the challenge of people living in this time to provide that enlightened vision, and that's why its a good time to be AWAKE!

Interest rates aren't low because of a government conspiracy, interest rates are low because the only way to stop the great recession was to drop interest rates through the floor to entice people to spend money. Now that things aren't so bad they have been considering raising rates for a while now.

a reply to: wayforward

The powers of creation are largely disseminated laterally, although some people understand how to wield them better than others. If the supply of currency grew at a fixed ratio to population, we would avoid inflationary forces, and if the power to issue new lines of credit rested in the hands of the people instead of in the hands of centralized profiteers, the ability for a well-connected person to manifest their dreams into reality overnight at almost zero interest would be stripped away from them, forcing them to compete on a more level playing field.

I love how people who beat the drum of meritocracy the loudest are the same ones who support an anti-meritocratic system of nepotism. There is nothing wrong with natural hierarchy, it is when the poor have to support an unnatural one on their backs, being crushed under the weight of it that problems begin to emerge.

originally posted by: CB328
Interest rates aren't low because of a government conspiracy, interest rates are low because the only way to stop the great recession was to drop interest rates through the floor to entice people to spend money. Now that things aren't so bad they have been considering raising rates for a while now.

That's true - by keeping everyone in debt, interest rates can be used as a brake/clutch to allow the economy to slow down or speed up. Taxes can be used with those who have large savings or investments in stock options.

a reply to: stormcell

In a real capitalist economy interest rates would not be set by a central bank. They would be set by the market individually and reflect the true risks and money supply. Here in Australia we did not have a central bank until the 50's I believe. Governments should not set interest rates. This creates distortions and bubbles in economies and causes things like the GFC. Low interest rates benefit banksters by driving up house and asset prices and creating ever increasing mortgages and debt.

a reply to: Nechash

amazing isnt it.....i used to hang out with a guy who inherited his families business which he sold for 60 million odd dollars...he showed me his bank statement one day...i was shocked ..he paid no account charges period,the statement was something like valued customer rebate...so if you have a wad of dough the bank will pay you interest with zero charges to keep your business

originally posted by: hopenotfeariswhatweneed
a reply to: Nechash

amazing isnt it.....i used to hang out with a guy who inherited his families business which he sold for 60 million odd dollars...he showed me his bank statement one day...i was shocked ..he paid no account charges period,the statement was something like valued customer rebate...so if you have a wad of dough the bank will pay you interest with zero charges to keep your business

Well yes... because those larger accounts enable the bank to loan more money and collect interest from the rest of their account holders. Banks will give money to people with large balances and charge service fees to those with small balances.

The fractional reserve system enables banks to do some mind-bogglingly illogical things with the imaginary numbers we refer to as "credit."

The bank can loan $54,000,000 of the $60,000,000... so let's say one of their members gets the $54,000,000 loan and he deposits it in his bank. That bank can now loan $48,600,000 of that $54,000,000 to someone else. "But wait!" you say, "they don't actually have the whole $48,600,000 to loan out because that was imaginary money taken against the imaginary $54,000,000 which was taken from the original $60,000,000!" You'd be right... but that's how the system works when you're not dealing with real money.

a reply to: Answer

i am aware of how fractional reserve banking works thx to my time on ats...i was just pointing out certain inequality that people might not know... and yeah the fed is a cancer that desperately needs a cure

a reply to: hopenotfeariswhatweneed

A friend of mine's mother took power of attorney over his father before he died and changed his will so that none of her children, grandchildren or inlaws would inherit a dime. From my understanding, her family could have still challenged this, but they were all loving enough towards her that they didn't do this. The only person who suffered (in her immediate family) was her son who had lost a job as a headhunter and had no economic resources at the time. Sadly, he was his father's favorite, so in the original will, he was set to inherit half of everything. She sold off his assets and interests keeping only a single apartment building, and she moved into one of the units.

She structured everything into an annuity which reinvested her dividends back into capital so she could qualify for social security. She lived off of social security basically, and anytime we would try to get her to spend some money on medicine to regulate her diabetes, she would complain about not being able to afford it because she was on a fixed income.

Her dividend payments were something like $120,000 per month, so I'm sure she was sitting on at least $30M. Why she lived like that is beyond me. It is as if the money hoarding bug crawled up her spine, attached itself to her brain stem and sucked all of the freedom and sanity right out of her. She is a very amazing person in every other regard. She taught me to speak and read some Korean, although apparently I pronounce my R's like an S.o.B... ;p She taught me to cook Korean and how to make rice consistently without messing it up. Were it not for her, I doubt I would have lived as well in L.A. She helped me through a very difficult time in my life, and I will never forget her for it.

The sad thing is, as wealthy as she was, I pitied her. It was not a blessing for her, but a curse which rendered her into a hermit almost completely cut off from her family.

I honestly don't know what the answer to these problems is. Some people inherit and strive to be responsible with the resources they've been given. Others become a slave to it. Most spend it like water. Ultimately, I didn't earn it, so if someone wants to give it all to their irresponsible son to die knowing that the fortune they amassed is going to be squandered away, then that is their business.

I think the accumulation of power and wealth beyond what is sane is evidence of a deficit in your life which cuts you straight to your core. A happy, well adjusted person does not hoard more than they need to live the lifestyle of their choice. Although, there is the difference between the creator who produces so many ideas that fortune comes to them beyond what they can control and the person who is constantly striving to earn just one more dollar. Personally, I think if we lived in a truly meritocratic world, we'd see a lot more of that creative type.

a reply to: Nechash

greed is a sickness....when my grandfather died his will caused all sorts of problems as my mother contested it....money just makes people mental....

here is an extract from the Guinness world records....

She was a very rich woman; in fact she was once the richest woman in the world, mainly because she didn’t use to spend any money on anything. And I do mean anything. Green was mainly interested in business because it was considered as her family business; there are many tales (of various degrees of accuracy) about her stinginess. She never turned on the heat nor used hot water. She wore an old black dress and undergarments that she changed only after they had been worn out. She did not wash her hands and rode an old carriage. She ate mostly pies that cost fifteen cents. One tale claims that she spent a night looking for a lost stamp worth two cents. Hettie’s son Ned broke his leg and had to have it amputated because Hettie delayed treatment while insisting on finding free medical care. The question arises how cheap a person can get when he/she has $7.5 million ($107 million in 2010 adjusted for inflation).

www.tapandaola111.com...

originally posted by: hopenotfeariswhatweneed
a reply to: Answer

i am aware of how fractional reserve banking works thx to my time on ats...i was just pointing out certain inequality that people might not know... and yeah the fed is a cancer that desperately needs a cure

I was agreeing with you and further pointing out the insanity of the federal reserve banking system. Not trying to school you.