Have you ever heard of “Financial Repression"? It is one of the many bulky words from the world of Finance and Central banks. It is so boring, but very important for your money.
Quite simply, this term describes a strategy of Central banks to keep long-term interest rates below the rate of inflation. The goal of such a policy, the debtor is and to relieve it in the first place, of course, the state itself – at the expense of us savers.
How to do this? Now, if the interest burden is lower than the depreciation of Money of the debt through Inflation, then the debt of the state to shrink in real terms over time, slowly but surely.
Why is this important for all of us? Mainly because the European Central Bank has followed for years, exactly this strategy. The reason, in order to relieve the highly indebted southern European countries in the Eurozone and the Euro to hold together. Exactly this goal is the Central idea behind the zero interest rate policy since the Euro crisis 8 years ago is. Oh, I forgot, that it is now a negative interest rate policy.
But what is good for the debtor, can not be good for savers. While you get the accounts, no interest is lost on the Inflation, the time Saved every day insidiously purchasing power. And now I use a Thesis above.
Inflation is set to rise in the next 2 to 3 years more than expected. In this regard, I have changed in these months, my previous opinion. The last few decades, I was always very skeptical of a danger of inflation. To me, the Deflation has made more Worried. And in a true market economy we would have received a decade ago as a result of the financial crisis, pretty sure a deflationary crisis.
The other side, however, that the quantity of money increases, but the velocity of Money continue to fall is keeps. Translated, this means that we save out of fear of the economic consequences of Corona more and our money will be spend a lot more slowly.
My explanation of why Inflation needs to come back, is anything other than scientific and to be based primarily on a healthy Dose of cynicism of the state Act.
As always, both sides have good arguments. And so my explanation of why Inflation needs to come back is, anything other than scientific and to be based primarily on a healthy Dose of cynicism of the state Act:
first, the debt in the world in terms of economic output today is almost three times as high as it was 40 years ago. As if that were not bad enough, you will be due to the corona crisis to rise. This is a fact for me that the big debtor, first of all, of course, the States themselves are no longer able to pay back their debts, and it anyway don't want to.
In consequence of our so omnipotent that appears Central banks are, in reality, prisoners of their own strategy. You will no longer be able to increase for a very, very long time, the interest rates. They did it collapsed because of the huge levels of debt worldwide and the whole System. This, in turn, will allow the governments have never and we have all seen in the last few weeks, who really has the Power. Especially if you calls quick a state of emergency. Thus, Central banks have but to use the new buzzword, sustainable, your most important weapon in the fight against Inflation robbed.Secondly, debts, always has to do with Power. Throughout history, debtors have paid only your loans, if the creditors were more powerful than you. And who the debtors are today? First and foremost the States themselves. But to make matters worse, many of the major economies are debt economies in the world as a Whole. All the United States, still the most powerful country in the world whose net indebtedness abroad, with 10,000 billion dollars, in the meantime, a good 50% of the country's annual economic output. Germany's savers and a handful of other countries are the creditors. And Inflation benefits the debtors. How will that end well? Guess.What to do? My recommendation: Keep a quarter in cash. That is, Inflation or not, your cash and cash Reserve. For another quarter of a precious metals (Gold, silver, platinum) buying. The other half should be widely spread in international securities are created. Good Luck! When it comes to our Savings, then we will thanks to Corona-Lockdown all of the need...
This article was written by Leonhard Fischer
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