Financial Repression: The Best of Times and Worst of Times

     One piece of economic ideology that gets my goat are those people-many of them found on the Wall Street Journal editorial page-who buy into the Greenspan Myth: that the current financial crisis as bad as it is has interrupted an economic olden Age, The Great Moderation which lasted from around 1981 till the start of this current crisis. The goal then would seem to be for us to return to this "normalcy" as soon as possible. Yet as a solution to our current problem it is wrong on its face and must be understood as such.

    The Golden Age of The Great Moderation was not quite what it's cracked up to be. For one thing the monetary policy which gave us it coincides with Reaganomics in the realm of fiscal policy. Overall it's hard to say that most Americans are better off than they were 30 years ago when these 2 complementary policies were implemented.

    In economics there are (always) winners and losers. Take almost any economic policy position and no matter how beneficial and effective it might be there will be somebody fighting it. Why? Because it disadvantages them, there is no policy that benefits everybody, never has been.

    Now in fact the era of 1948-77 was a Golden Age for most Americans in terms of a consistent rise in the standard of living. Then came the Reagan Revolution and Paul Voicker's new monetary regime, The Great Moderation. Why if most Americans did better in the previous regime was there this push from conservatives for this new policy regime which has proven to be much less efficacious for most Americans?

    Well consider the work of Carmen Reinhart who refers to the time period of 1948-80 as the age of "financial repression." 1980 was the end of financial repression it was also the end of something else: a 40 year bear market for U.S. bonds.

    That's what I mean about winners and losers or as Dickens put it It was the best of times it was the worst of times!

     The age of financial repression was overall the best of times for most Americans but it was the worst of times for bond sellers. The last 30 years have been the worst of times for most Americans but the best of times for bond sellers.