The Cost of Financial Repression

“Why can’t interest rates just always be close to zero, so long as inflation remains in check?” my client asked me the other day.  We were talking about the difficulty in putting together retirement income portfolios.  I told him stay tuned, because heaven forbid we become Japan, that’s exactly what we could see.

I was half-kidding, hold your comments.

Anyway, an interesting tidbit from Deutsche on the cost of financial repression to investors along with the benefit to the Treasury in terms of lowered interest expense…

From Bloomberg:

Global central bank policy that has driven down interest rates to boost economic growth will cost investors about $163 billion over a 10-year period, according to Deutsche Bank AG.

Yields on government debt have fallen about 81 basis points since the third quarter of 2010 amid $1.74 trillion of debt issuance as central banks expanded their balance sheets, Dominic Konstam, global head of interest-rates research at Deutsche Bank in New York, wrote Aug. 10 in a research report…

The U.S. has spent about $323.1 billion on interest expense on its $15.9 trillion of debt this fiscal year, which ends Sept. 30, compared with $412.5 billion during the same span in 2011, according to data compiled by Bloomberg.


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