How the Bank of England's financial repression screws you

How financial repression screws you

Financial repression is a wealth redistribution program run by the Bank of England where the purchasing power of the currency is transferred from the poorest in society to the wealthiest. The transfer happens at all lower echelons of society, although it disproportionately hurts the poorest.

It occurs when the Bank of England suppresses its base rate for long periods to deliberately create high inflation and debase the currency so that anyone earning or saving the currency is guaranteed to lose real wealth. Here are just some of the ways financial repression screws you.

Confiscation of purchasing power

Purchasing power is lost through inflation meaning your money buys less and less over time. However, inflation is not natural, as most people have been led to believe; it is a choice made by the Bank of England and the UK government.

Confiscation of earnings and pay rises

If you've had a pay rise this century, you may have felt upbeat about it for while, only to later wonder why you aren't actually any better off. This is because real wages have been declining over the last two decades. This means most people have been getting poorer as a result of financial repression.

Confiscation of savings

Savings are the only reason people can borrow, yet savers are another victim of the Bank of England's wealth redistribution program. Anyone trying to save a deposit for a house is being constantly hit by a triple whammy of earnings confiscation, savings confiscation and the inflating of house prices by the Bank of England and the UK government.

Creating mania in the housing market

By fuelling runaway inflation in the housing market, the Bank of England and UK government are encouraging reckless borrowing on the pretence that the housing market is a wealth generating engine, creating wealth out of thin air. This is despite the UK having experienced three prior housing booms and busts since the 1970s that were each followed by a painful economic downturn.

Causing housebuilders to land-bank rather than build homes

Housebuilders have two choices: they can build properties on the land they buy, and sell them for a profit; or they can sit on the land for the same period and profit from land price appreciation. Because financial repression debases the currency and destroys its value, all other assets, including all land, get inflated in price. Rising land prices disincentivises house builders from building and encourages land-banking.

Subsidising the wealthiest

Since the wealthiest tend to own assets that generate income, they are the beneficiaries of financial repression. As the currency is debased through inflation, incomes rise as prices are raised (for example, the rental income on properties). The main benefit, however, comes from the rising prices of assets relative to the depreciating debt borrowed against them. Even though we measure people's wealth in terms of money, wealthy people do not hoard money: they hoard assets and borrow against them. This is why, for example, sometimes they have to sell assets, like stocks and shares, to pay a tax bill.

Burdening the country with massive debts

The Bank of England is encouraging people to get into greater and greater debt by artificially suppressing borrowing costs. It is normalising enormous debt levels. The total UK personal debt stood at £1.75 trillion at the end of October 2021. This represents £63,000 per household, and is on top of the £83,000 of UK government debt per household (£72,000 per taxpayer).

Enslaving future generations

Financial repression requires the Bank of England to counterfeit money to buy government bonds enabling and encouraging reckless government borrowing and spending that will have to be paid back by future generations.

Find out more about financial repression by the Bank of England