Have you been saving money all your life for retirement? If so, or you are in the process of doing so, beware. Have you considered that the debt obligations of the world's leading governments will most likely be financed by eroding the value of your savings? According to leading economist Carmen Reinhart, this is probably going to happen.

Economist Carmen Reinhart argued in her March 2011 academic paper, “The Liquidation of Government Debt” The Liquidation of Government Debt”, that the US Government can finance its debt by placing “caps on interest rates” and by creating a “captive domestic audience” to invest in US Treasuries. She argues that negative real interest rates in the face of a steady, although not necessarily extreme inflation rate, will conveniently eat away at the value of government debt. Reinhart labels this “financial repression”. It seems like lawmakers have chosen this strategy to manage the US debt, as it allows them to continue spending.

Naturally, the adverse effect of financial repression would be the surreptitious erosion of the value of the savings accounts of the masses. To baby boomers that are looking to retire, and to the working and middle class, this is financial repression at its finest. Those that are already retired and living on fixed income will likely be hit the hardest as the value of their incomes diminish steadily. With a good chunk of our economy already dedicated to the subject of legally reducing or avoiding income and other taxes, perhaps it would be prudent for Americans to make plans to avoid the inflation tax.

While gold is not a dividend paying investment, it acts as an alternative to dollar denominated savings and checking accounts. Obviously, Americans moving their savings into precious metals or foreign assets will not help the US Government in the quest to liquidate its debt. Not surprisingly, in the past we have seen numerous efforts by the US Government to monitor, tax, and restrict Americans’ ability to remove their wealth from the US Dollar system. More of this will most likely come soon. Reinhart acknowledges that the government would have to find some way of legally discouraging, limiting or outright outlawing investment in such assets for financial repression to effectively create a “captive domestic audience.”

Of course, it does not help politicians that gold has been steadily moving higher over the past several years. Recently, more and more people have come to see the yellow metal as a legitimate alternative to investments in US debt instruments. Bond prices are being actively and overtly supported by the Fed’s policy. Regardless of the many claims of de jure suppression of the gold price by the Fed and bullion banks, it is clear that policy makers deliberately avoid mentioning the metal unless they absolutely must.

It is interesting to note that Reinhart’s husband was a former colleague of the current Chairman of the US Federal Reserve Bank, Ben Bernanke. So Carmen is not just any prominent economist, but one with ties to the highest levels of the world largest central bank. She knows a thing or two, so be on the lookout for “financial repression”.


David Ford

Co-Founder at

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