Social Mood Conference | Socionomics Foundation

[Article] ‘Financial Repression’ is Reemerging

2011, Alan Hall, Article, Economy, The Socionomist
By Alan Hall
Originally published in the June 2011 Socionomist

The temptation for governments to impose other forms of control has increased. For example, a buzz phrase from the 1970s bear market has re-emerged: “financial repression.” A new academic paper analyzes how heavily indebted governments have attempted, throughout history, to squeeze indirect tax revenue from their citizens. According to the authors, some of the mechanisms the governments employed include:

  1. Explicit or indirect caps or ceilings on interest rates, particularly ([though] not exclusively) those on government debts.
  2. Creation and maintenance of a captive domestic audience that facilitated [and] directed credit to the government.
  3. Direct ownership [by the government] … of banks or extensive management of banks and other financial institutions.7

The U.S. financial system exhibits each of these features. Consider:

  1. The Federal Reserve’s loan rate remains near zero.
  2. The U.S. Treasury Secretary told Congress on May 16, 2011 that “he would start tapping into federal pension funds … to free up borrowing capacity.”8
  3. The government owns large interests in several major banks, lenders Fannie Mae and Freddie Mac, auto/finance companies GM, Ford and Chrysler, and the insurance company AIG.

Financial Control Backlash
Governments may soon face a far greater challenge to their wealth and authority via private currency issues. The September 2010 issue of The Elliott Wave Theorist reported:

As distrust in central banks continues to increase as the financial crisis drags on, the idea of private currencies should grow in popularity. Cryptography expert Satoshi Nakamoto has created the first completely decentralized, anonymous, electronic currency, called Bitcoin.

Rick Falkvinge is founder of the Swedish Pirate Party, a political party founded in 2006 that strives to reform copyright and patent laws and increase both individual rights to privacy and government transparency. Falkvinge made an observation that is right in line with the above comment and our May 2010 forecast in The Socionomist that “governments will shut down sections of the Internet.” On May 20, 2011, he wrote on his website:

Here’s what’s on my radar: banking. There are at least a dozen different variants of decentralized cryptographic currencies and transaction systems out there, very sophisticated and totally incomprehensible. There’s Ripple, Bitcoin, ecash and others.

Just as BitTorrent made the copyright industry obsolete in the blink of an eye, these stand to make banks obsolete. … The technology is there, the use case is there—there’s certainly no shortage of annoyance with big banking. It’s just a matter of usability now.

When this tipping point happens, there won’t be any central point of control over economies. It will be like everybody traded in cash, traditional anonymous cash, once again. … How do you think governments across the world are going to react when they realize they’ve lost the ability to tax the public? Why, then, will this make governments dump a ton of bricks on the Internet?

The governments of the world are on the brink of losing the ability to look into the economy of their citizens. They stand to lose the ability to seize assets, they stand to lose the ability to collect debts … . All the world’s weapons in all the world’s police hands are useless against the public’s ability to keep their cryptographic economy to themselves.9

A Multifront Battleground
The potential for decentralized, uncontrollable information systems and economies represents a huge threat to governments. As the largest debt bubble in modern history unwinds, socionomists expect to see many and varied attempts to dial up the repression … and an intensification of the inevitable backlash.■

CITATIONS

7Reinhart, C.M. & Sbrancia, M.B. (2011, March). The liquidation of government debt. National Bureau of Economic Research. Retrieved from https://www.imf.org/external/np/seminars/eng/2011/res2/pdf/crbs.pdf on May 24, 2011.
8US dips into pension funds as debt limit hit (2011, May 16). MSNBC.com, Retrieved from http://www.msnbc.msn.com/id/43046428/ns/business-stocks_and_economy/t/us-dips-pension-funds-debt-limit-hit/ on June 20, 2011.
9Falkvinge, R. (2011, May 11). With the Napster of banking round the corner, bring out your popcorn. Falkvinge.net, Retrieved from http://falkvinge.net/2011/05/11/with-the-napster-of-banking-round-the-corner-bring-out-your-popcorn/ on May 24, 2011.

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