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FINANCIAL REPRESSION

PURU SAXENA is Founder and Chief Executive Officer of Puru Saxena Wealth Management in Hong Kong. Mr. Saxena has extensive investment experience and he is a registered investment advisor/money manager with the Securities & Futures Commission of Hong Kong. Highly respected in the investment management business, he is a regular guest on various media such as CNN, BBC, CNBC, Bloomberg, Reuters and a host of other channels. Furthermore, he is regularly featured in several publications such as Barron’s, Hong Kong Economic Times, South China Morning Post, Benchmark magazine, Hong Kong Business and China Daily. Mr. Saxena is also the editor of our monthly economic report – Money Matters. Our highly acclaimed publication is read by professional and retail investors in numerous countries. He first began publishing his monthly economic report in June 2000 and it has now attracted a wide following.

PURU SAXENA talks

FINANCIAL REPRESSION

31 Minute Video Interview

FINANCIAL REPRESSION

"We have been through a huge financial crisis in 2008 which brought the world's banking system to it knees. The US housing market was on it knees. It was the worst recession, if not depression that the US faced in a long time. It affected all the global markets. So rightly or wrongly - wrongly in my view - the central banks decided to bailout everyone in site by keeping interest rates near zero and launching Quantitative Easing programs (which is essentially bond buying or asset swapping) which is printing new money and buying toxic bonds from the banks and thereby cleaning up the banks balance sheets - making sure the banking system survives."

"In the process they have held interest rates at zero for a long long time, not only in the US, Europe and a lot of other countries in the developed world, which is penalizing the savers to the benefit of the borrowers and debtors. They are especially hurting people at retirement or close to retirement because suddenly their passive income which they had worked so hard to accumulate all their life disappears!"

"It is essentially a transfer of wealth from savers to the borrowers and debtors."

"This has managed to stabilize the system temporarily but is really not good for society!"

UNINTENDED CONSEQUENCES

"The problem is everyone has become accustomed to being bailed out! Now there is no such thing as a bankruptcy! Everyone knows (especially the banks), if they make mistakes someone will bail them out either the central banks or the government. It has increased risk taking.

"It has increased risk taking."

"I never felt QE was capable of increasing business activity because this is not really a supply side problem but a demand side problem. You have households all over the world already choking on debt. The last thing they want to do is borrow more money even if you drop rates to zero or give them money to borrow, they just are not going to do it!

A DEMAND PROBLEM

"When people ask why QE hasn't caused inflation or hyperinflation, the answer is simple: households in the west were in no position to borrow money at even zero interest rates. The aggregate demand for new debt or credit was simply not there. By swapping assets the central banks have managed to cleanup the banking system but they have not been able to ignite the risk appetite at the household level".

"We have a Demand problem, NOT a Supply Side problem!"

This is a global problem! "Even in Hong Kong, 2 years ago it was teaming with mainline Chinese tourists which now are simply not coming. Retail sales in Hong Kong have fallen significantly. Spending is hurting as the middle class has been obliterated! The rich have become richer as assets have increased and savers have been penalized. This policy of QE and Financial Repression has really helped the elite of the world - who have had access to financial leveraging."

LOW GROWTH ECONOMIC ENVIRONMENT

The core problem to Puru Saxena is:

1. The low growth economic environment we find ourselves in,
2. The deflationary pressures in Europe and Japan

"Historically we have seen, whenever an economy passes through an extremely slow growth, sluggish environment where there is a lack of aggregate demand and you have deflationary pressures, long term interest rates have always gone down. The tendency of long-term interest rates is to drift lower in this environment. Long-term interest rates are normally set by the rate of economic activity as well as the real rate of inflation. At the moment we don't really have much inflation or at least forces on inflation anywhere in the developed world and economic activity is zero or even negative!"

Long-term interest rates are price appropriately for the current economic activity!

There is much, much more in this 31 minute macroeconomic view of the world and the investment opportunities it presents.

AUDIO ONLY - choose an alternate listening method...

The Lessons on Capital Controls

from Argentina

Sovereign Man explains how Argentina's government is bankrupt & has been implementing countless sets of controls including exchange price controls, media controls, exchange controls & capital controls [financial repression] .. "When governments find themselves in financial trouble because of the stupid decisions that they’ve made, their first response is to award themselves even more power to make even stupider decisions. And among the stupidest decisions that any government can make is imposing capital controls .. something that Argentina has in abundance." .. these capital controls include prohibitions to leave the country with more than U.S.$10,000 in cash & significant paperwork & bureaucracy to wire funds out of the country .. also there is a 30% difference in the official exchange rate with the market exchange rate so that your wired funds leaving the country are effectively 30% less than you think .. "What happens with capital controls: you see a rapid decline in your standard of living as the government traps your savings in a bankrupt system .. It’s like lying on the ground with a blindfold on while the government builds a coffin all around you .. Little by little they fasten together all the sides, and then the top, nail by nail. Capital controls are like a coffin for your savings."

LINK HERE to the Article

Austrian School Economist Carl Menger:

"Money Emerges from a Free Market Economy,

Not From Government Decree"

Dr. Joseph Salerno on The War on Cash

"The free market provides the prospect of an escape from the fiscal police state that seeks to stamp out the use of cash [financial repression] through either depreciation of central-bank-issued currency combined with unchanged currency denominations or direct legal limitation on the size of cash transactions. As Carl Menger, the founder of the Austrian School of economics, explained over 140 years ago, money emerges not by government decree but through a market process driven by the actions of individuals who are continually seeking a means to accomplish their goals through exchange most efficiently. Every so often history offers up another example that illustrates Menger’s point. The use of sheep, bottled water, and cigarettes as media of exchange in Iraqi rural villages after the U.S. invasion and collapse of the dinar is one recent example. Another example was Argentina after the collapse of the peso, when grain contracts priced in dollars were regularly exchanged for big-ticket items like automobiles, trucks, and farm equipment. In fact, Argentine farmers began hoarding grain in silos to substitute for holding cash balances in the form of depreciating pesos."
- Dr. Joseph Salerno, The Mises Institute

LINK HERE to the Article

Mark Thornton on

The True Meaning of Financial Repression

LINK HERE to the Podcast

BCA Research Chief Economist Martin Barnes:

"Financial Repression is Here to Stay"

LINK HERE to the Article & Link to Report