Peter Schiff lays out the case for financial repression--interest rates below inflation rates--in a blog post at SchiffGold.
The fact is that given all of the debt the US economy can’t handle the high interest rate environment necessary to tame rising prices. The Federal Reserve boosted interest rates modestly to 2.5% in 2018 and all hell broke loose. The stock market crashed, and the Fed was forced back to loose monetary policy even before the coronavirus pandemic. As Schiff noted in a podcast, if the economy couldn’t handle higher rates in 2018, it certainly can’t handle them today.
The level of debt is so much greater than it was then. And so, the more debt you have, the lower interest rate is required to be able to service that debt. So, if two-and-a-half percent was too much when the national debt was significantly lower than it is today, then that threshold is much lower. I don’t even think we could survive a move to one percent from the Fed.”
It seems almost certain the massive budget deficits will continue into the foreseeable future. That means the government will need to continue borrowing and it will need the central bank to keep its thumb on the bond market to make that possible. That means no tightening.
Financial repression is bad news for young people trying to save and accumulate assets. Millenials and GenZers wealth is far below that of the Boomers and older generations at the same age. Financial repression is going to make it even harder for young people to build nest eggs as inflation eats up their savings.
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