When an over-indebted country is unable to reduce its deficit (or refuses to do it in order to continue financing its voting constituency) it exposes itself to market defiance and fleeing investors. In spite of that, in order to avoid this nightmarish scenario, it uses its sovereign power to force available monies to finance its debt at very low rates. This is what is called “financial repression”.

This financial repression uses many forms such as, notably, prudential rules for the banks (Basel III) and insurance companies (Solvency II) that make it almost compelling to acquire sovereign bonds. Thus a bank that buys sovereign bonds rated between AAA and AA- doesn’t need to freeze any of its assets as collateral, these bonds being considered as perfectly safe, while it has to freeze assets in the case of real estate or stocks. This is how the rules favour the former.

A country may also give fiscal encouragement to life insurance companies – they invest primarily in Treasuries – in order to capture as much of the household savings as they can. In certain emerging countries, capital controls are in place to keep savings in the country. The tightening of the ties between states and banks also helps: after having bailed out many banks in the 2008 crisis, governments are now asking that they finance their deficits in return. Of course, the most important leverage is this “quantitative easing” that central banks use, with governments either looking on or amiably pressuring them. It is a little like if you were to ask for credit from your banker while pointing a gun at his head... you would surely get a very low rate! This is akin to what countries do.

These measures are compelling for available money to finance public debt at low rates, and this means – from the savers’ view – that there is hardly any yield left on savings, in any case less than expected. Yes, but how much exactly? For the first time, as far as we know, a large financial institution, re-insurer Swiss Re, has looked into the matter. Numbers speak for themselves since, according to Swiss Re, American savers have lost $470Billion in net interest revenue since the 2008 crisis! For American and European insurance companies the losses amount to $400Billion, which “corresponds to an average yearly “tax” of around 0.8% of the total of financial assets”. All this money was lost by savers and insurance companies and given to the states.

Low yields do not encourage savings – and those savings are used, to a great extent, to satisfy the states’ needs. We need to look no further for the reasons why there is no growth in Europe, in Japan, and hardly any in the United States: the engine of capitalism is broken. Normally, savings finance business investments – now, saving money is not only discouraged but, for a large part, the money saved is used by the state, and it does not create any growth. Thus, “financial repression” destroys the economy from within.