Macq-ro insights:Financial repression for decades

It’s a fiscal policy choice: an implicit tax on savings, keeping funding costs low, rather than increasing taxes or cutting entitlements.

This note focuses on the G7 advanced economies. The political consequences of ‘the long grinding cycle’ have been intensifying. Entitlement program promises are under pressure. Politicians are not only looking to boost global growth, somehow, but also to ensure low funding costs persist for as long as possible.

The principal driver of record low bond yields since 2009 has evolved from cyclical factors (secular stagnation), through a private sector balance sheet recession (completed in the US; ongoing, but progressing in the eurozone) to fiscal reconstruction (reloading the fiscal policy tool weapon) using the seductive tool of financial repression.

Budget realities, table left, will leave government investment expenditure under pressure. Please see pages 12-15 and the 18 July 2016 Macq-ro insights: Fiscal winds of change. The secular trends of privatisation and public-private infrastructure partnerships are expected to continue.