The United States does not have the traditional type of financial repression where savers are household consumers who primarily deposit their savings in banks. And where borrowers are producer firms that primarily borrow at banks. These constraints apply mostly to emerging economies. The key with these constraints is to tie consumption to the return on […]
From part 3, financial repression expresses in positive ways. Examples, relative government debt is reduced, economic growth speeds up and exports become more competitive. Then why do most advanced countries steer away from it? Or at least why did they in the past? …Financial Repression eventually leads to an Unstable Economy. Advanced countries know better […]
When a central bank keeps its base interest rate low, financial repression can manifest. Well… how does it manifest? What changes do we see in the economy? And what happens when you combine low interest rates with a falling labor share? How might low labor share resemble financial repression? Part 1, a basic model … […]
In part 1, a basic model of financial repression was presented. Now I apply the model to look for evidence of financial repression in the United States. First I need to give the equations of the lines. Graph #1… Basic model of financial repression. Path of nominal Fed rate = z * (N^2 + T^2) […]
Is there financial repression in the United States? Are some people repressed economically, while others have inordinate advantages? Is there a similarity between financial repression and falling labor share? Is financial repression something to be feared or criticized? What the heck is financial repression anyway? This post begins a 5-part series on financial repression with […]
Update from John Aziz below… I see a Brad DeLong post where he includes a post from John Aziz, which John wrote back in April 2013. The DeLong post is about a savings glut, and the Aziz post points to the rise in savings as a percentage of GDP. But John Aziz wrote… “The actual […]
Paul Krugman, Dean Baker, Mark Thoma, (update: Jared Bernstein) and many others call for fiscal policy to boost employment and production. Their idea is to increase employment and labor’s power to bargain for better wages. The increased purchasing power of labor will resolve some problems with debt overhang too. There would be a snowball effect […]
Tim Duy wrote in a post titled, Inflation, Wages and Policy… “The fact that wages are rising while unemployment remains high is probably something of a puzzle to them (the Fed), and lends credence to the stories that the labor market is currently affected by severe structural issues…” The explanation of wage growth uses structural […]
Paul Krugman is developing the ideas to understand one of the root causes of the economic problems. His present line of logic leads to understanding the effective demand constraint upon output. He writes… “Profits took a hit during the financial crisis, but have soared since then, and are now 60 percent above pre-crisis levels; meanwhile […]
Enjoy this Christmas because next year Christmas may not be as Merry… As real GDP nears the effective demand limit, we should see some signs of the economy turning the corner toward a contraction. So, do we see any signs? … Well, yes. This graph plots the aggregate profit rate against the savings rate of […]