Forfeiture of deposits inflation and financial repression | IMF’s prescription for overcoming the crisis
A new working paper by the IMF delivered a strong program of instructions to solve the sovereign debt crisis in Europe. The document notes that the debt problem is much more serious than has been seen so far and warns that all the measures taken by the EU, the EC, the ECB and the IMF itself will not be enough to resolve the crisis. The mantra of collective amnesia has led these countries to think that these measures as austerity and budget cuts would be enough but the truth is that it was only an illusion. According to the authors of the document, this crisis surpasses all previous crises, with a debt that has broken all historical records and has caught the entire global economy. The recipe is the application of an unprecedented financial repression and a wave of industrial action to reduce debt. These measures are a mixture of significant cuts in sovereign debt, confiscation of private savings, capital controls and inflation generation to liquefy faster debt and boost growth. Everything indicates that the deflationary ghost is haunting Europe to stay.
The document notes that massive writedowns on debt have significant effects on the biggest debt situation in Western countries in the last 200 years and should be applied. Many still cling to the illusion that rich countries can emerge from the crisis with austerity programs and public cuts but the reality is requiring more relentless action. The solution to the debt issue requires brutal, determined and decisive action, says this report by the same authors.
Forfeiture of deposits and massive cuts
Reinhart and Rogoff seem to say that only the mass confiscation of private savings and massive cuts in the debt economy can restore its financial hit in 80 years. Reinhart and Rogoff suggest that measures should be implemented quickly to get out of a stalemate that persists and will become worse. Much of the western world requires unpaid, large-scale confiscation of deposits which will be required and should be promoted as higher inflation to clear the road to recovery. For Reinhart and Rogoff, debt burden in developed countries has reached record highs and it has become unbearable. So no pettiness or alterations which have been applied so far are required. The negotiation should be in the style of the 30s, with significant losses and serious punishment and balances restructuring debt to be agreed, based on objective parameters of growth and employment.