A couple of years back, when Carmen Reinhart and Belen Sbrancia updated the concept whereby governments might deal with a problematic mountain of debt by confiscating the savings of their subjects, the discussion was all about the subtle, sleight of hand solutions that might be employed.Alphaville has been all over this story since the Joseph Cotterill post at 18:37 on Saturday. See:
Artificially cheap rates of interest might be forced on the embattled sovereign’s debt, local banks might be obliged to buy mis-priced government paper, exchange controls may be erected, and so on. Ordinary people, it seemed, could be financially repressed without realising they were in fact the victims.
There was no discussion back then of outright expropriation or a “tax”, as insured (and uninsured) depositors at Cypriot banks are now being forced to bear.
Joseph has a detailed discussion here of the peculiar circumstances that made a bailout of Cyprus particularly challenging. Senior bondholders are all but non-existent at Cypriot banks (and therefore not available to share any pain), while PSI at the sovereign level would have pushed local bond holders (local banks) over the edge and/or brought on months of litigation from foreign holders. Meanwhile, we had the spectre of German politics (‘German taxpayers bailing out Russian money launderers’) clashing with Russian strategic interests (owners of the said laundered money)....MORE
The fallout: Cyprus editionFor more on Financial Repression see our series from last year:
Teaching a lesson, lesson learned
The stupid idea, and the system
The Cyprus depositor pain-distribution ratio
UPDATED--Talk About Financial Repression: It's Now Illegal to Mention Foreign Currency in Ukrain
Financial Repression Phase II: "Is The IMF Now Recommending Capital Controls...?"
Research Affiliates (Rob Arnott) "Financial Repression and Real Rates"
Allianz on Repression: "Welcome to a RIGGED Future in a World of Financial Repression "
Rothschild Wealth Management: "Investing in an era of financial repression"
Rabobank on Financial Repression and What Bernanke is Up To
IMF: "The Good, the Bad and the Ugly: 100 Years of Dealing with Public Debt Overhangs" (Policy Responses to Debt/GDP Over 100%)
"Investing When Fundementals Don't Matter"
And from the big daddy of recent research (ref'd above), Carmen M. Reinhart and M. Belen Sbrancia's "THE LIQUIDATION OF GOVERNMENT DEBT":
...The pillars of “Financial Repression...
