Financial repression constitutes the secret weapon of governments to reduce an exploding debt. This perverse mechanism deliberately keeps interest rates below inflation. Thus, their savings progressively lose value without any government having to announce new unpopular taxes.
This is how this stealthy mechanism works:
Governments issue bonds to finance their expenditures. But, with astronomical levels of indebtedness, willing buyers are scarce. Therefore, authorities force banks and pension funds to hold these low-yield bonds.
Japan is already massively applying this strategy. Japanese financial institutions are saturated with government bonds. Europe is following the same path. The United States is following in its footsteps.
Russell Napier, a recognized financial historian, warns us that this silent confiscation will last for decades. Savers will thus pay the bill for public indebtedness. Meanwhile, the real value of government debt will slowly decrease, allowing politicians to be re-elected.
U.S. consumer debt already exceeds $18 trillion. This staggering figure includes mortgages, credit cards, and student loans. Credit cards alone represent over $1 trillion.
Average interest rates exceed 20% on these cards. Millions of Americans use them to pay for groceries and bills. It is no longer comfort credit, but credit survival.
Student loans crush an entire generation. Young people delay buying homes and starting families. Mortgages devour larger and larger parts of monthly income.
This debt spiral connects with financial repression. On one hand, savings are reduced. On the other hand, debts accumulate. Purchasing power collapses between these two jaws.
Capitalism did not always exist. It arose from the ashes of medieval feudalism. The Black Death of the 14th century decimated a third of the European population. This catastrophe paradoxically created the conditions for change.
The labor shortage strengthened the power of peasants. They negotiated better conditions. Feudalism gradually crumbled. Capitalism took its place, and thus the industrialization of the 19th century created unprecedented wealth.
But barons like Rockefeller monopolized entire sectors. Theodore Roosevelt broke these monopolies in the early 20th century.
Nowadays, we are moving towards what some call techno-feudalism. Apple takes 30% of every app sale. Google dominates online advertising. Meta controls communication between people. Nvidia, the computing power.
These giants no longer truly innovate. They extract rents due to their dominant position. Like feudal lords taxed their lands.
The emerging alternatives to the collapse of capitalism
Universal Basic Income (UBI) is gaining popularity, even among tech giants, with promoters like Sam Altman, CEO of OpenAI. However, funding remains problematic. Through taxes, UBI could generate deflation. Through monetary creation, it would feed inflation. Experiments also show a drop in productivity.
Cryptocurrencies also offer a different exit. Bitcoin operates outside the traditional banking system. It protects against financial repression and inflation, thanks to its fixed money supply: 21 million BTC. Today, Bitcoin represents an alternative financial infrastructure to the dollar system that is credible.
Finally, the last alternative would be a profound reform of capitalism. Dismantle technological monopolies like Google and Amazon. Close the tax loopholes of multinationals. Invest massively in education and health. Reopen the issue of repudiating national debts.
Protect your wealth in this storm
To preserve their savings and diversify into antifragile assets with the goal of protecting them, even growing them, it is vital to know the sectors that could be harmed. What are they?
◽Banks and insurers could particularly suffer. Financial repression crushes their profit margins. Bonds yield less than inflation.
◽Consumer-dependent companies may also be affected. Retail, automotive, residential real estate. Their model relies on increasingly indebted customers.
On the other hand, tangible assets are likely to shine.
◽Gold, silver, and commodities historically perform well. Central banks are massively accumulating gold themselves.
◽Sectors aligned with government priorities will undoubtedly prosper, especially as the conflict between the United States and China grows more threatening. Infrastructure, energy, health, and defense. Governments should significantly increase these expenditures.
◽Bitcoin deserves an allocation in any portfolio. This digital store of value escapes state control. Its programmed scarcity protects against monetary devaluation.
◽Geographic diversification becomes crucial. Economic turbulence hits regions unevenly. Spreading investments across countries and currencies significantly reduces risks.
Capitalism will not collapse tomorrow morning. But the next decade will profoundly transform our economic system. Financial repression, massive indebtedness, and techno-feudalism drive this evolution. Smart investors are already adapting by favoring antifragile assets like bitcoin.
