The chart above confirms that US corporate profits have now reached record levels as a percentage of GDP. They are unlikely to stay there. Napier suggests, perfectly logically, that when the government needs money to fund itself, it will target those constituents that actually have some. That is, in other words, wealthy individuals and corporations.

What will be awkward about this financial repression of the moneyed classes, if it comes (which it surely will), is the timing. Well, not just the timing, but the yields on offer consistent with that timing. With the benefit of hindsight it would have been no bad thing to be coerced into buying US Treasuries when they yielded, say, 16% (the chart below shows generic 10 year yields going back to 1979; source: Bloomberg). But now that they yield 2% or so (a negative real yield of 1% or so using official inflation data), well, who wants that ? Answer: not foreign central banks, many of whom have stopped buying this yieldless junk.

And:

In an NBER paper last year, Carmen Reinhart and M. Belen Sbrancia pointed the way. As their abstract states,

"Historically, periods of high indebtedness have been associated with a rising incidence of default or restructuring of public and private debts. A subtle type of debt restructuring takes the form of "financial repression". Financial repression includes directed lending to government by captive domestic audiences (such as pension funds), explicit or implicit caps on interest rates, regulation of cross-border capital movements, and (generally) a tighter connection between governments and banks.. Low nominal interest rates help reduce debt servicing costs while a high incidence of negative real interest rates liquidates or erodes the real value of government debt. Thus, financial repression is most successful in liquidating debts when accompanied by a steady dose of inflation."

David Fuller's view Western Autonomies have anticipated the risk of financial repression and it is a key reason why they have preferred to keep overseas earnings overseas.

This is certainly not the first time that desperate or ruthless governments have resorted to financial repression, and it will not be the last. At least we have recourse to the ballot box in democracies and if that does not work we can always flee to The Best Exotic Marigold Hotel. You would probably enjoy the film, if not the solution.