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Financial Repression

In the course of writing my book on British banking stability, I've been thinking a lot about financial repression. Financial repression is where governments repress the financial system in order to generate low nominal rates and negative real rates of interest. After World War II, most combatants had really high levels of debt. Consequently, governments used financial repression to reduce their debt servicing costs as well as the real value of their debt. After the 2007-8 financial crisis, many economies have very high levels of government debt. How can they reduce the real value of this debt and keep their debt-servicing costs low? The answer is financial repression - low nominal rates, negative real rates, and a small dose of inflation. You can read more about financial repression here and here.

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