Financial Repression in the United States
In times of economic hardships and massive amounts of accumulated debt, governments must look at ways in which they can resolve such indebtedness and put their respective economies back on track towards periods of healthy growth and hopeful prosperity. The United States currently finds itself in such a situation- and with few viable options for remediation, many economists believe that “financial repression” is the answer. The term was created in 1973 via the works of two economists at Stanford University named Edward Shaw and Ronald McKinnon (Reinhart), and refers to the process of reducing debt by “repressing” the wealth within a country. When implemented, the basic goal of financial repression is to liquidate the value of government issued debt by creating an environment of negative interest rates-that is, interest rates that are lower than what would normally exist in a free market. Over time, this process (along with a steady dose of inflation) is intended to reduce the national debt-to-GDP ratio by literally de-valuing government debt. But such a policy cannot be pursued or executed without raising certain questions and creating certain controversy. The following paragraphs will attempt to explain this concept in more detail, and discuss the pros and cons of its implementation by the United States.
Past situations in which governments have found themselves under such indebted circumstances have taught us that there are usually the same handful of solutions that can be used to rectify a struggling economy. The first is economic growth, to where the GDP grows at a fast enough rate that the economy is literally able to grow their way out of their debt. This would be
the most ide...
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...ucate themselves on possible options in order to decide what they believe is the right side to take.
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