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Financial Repression

Categories: Econ, Tax

Financial repression: When the government is funding itself more than for the benefit of the people. Hello, Chad. We're lookin' at you. Hi, Somalia. Hi, Indonesia.

Financial repression was a term coined in the early '70s by some economists who thought lower-GDP nations had governments that funneled money more toward government debt (to pay for the corruption of their big bosses) and less toward potential economy-spurring activities. Financial repression can be direct via controlling and capping money, or indirect, like using interest and inflation to make government debt disappear a bit.

Some examples of financially repressive policies: putting caps on interest rates, placing heavier hands on government lending, and generally becoming a helicopter parent on banks and movement of money. As a government begins to reduce its deficit (public debt) by siphoning off private money, the economy is harmed. Lack of trust in the government creates an almost impossible-to-manage system of credit.

How do you win back trust once it's broken? Eh, usually you don't.

Find other enlightening terms in Shmoop Finance Genius Bar(f)