However the fight over President Trump’s attempt to fire Federal Reserve Governor Lisa Cook comes out, the White House is clearly putting extreme pressure on the Fed to lower short-term interest rates immediately, and appears likely to succeed. This political forcing down of short-term rates is given the term “financial repression.”
Well-known American economist Kenneth Rogoff wrote about this in an article in the Foreign Affairs September-October issue, that the Administration will “almost certainly reach for heterodox options that are today more associated with emerging markets” than superpowers. The article is “America’s Coming Crash: Will Washington’s debt addiction spark the next global crisis?” In the lengthy analysis, Rogoff repeatedly introduces the possibility that the United States will default before long, either directly or by rapidly inflating down the value of the dollar, driving investors worldwide away from American long-term federal debt.
“Financial repression” not only includes forcing down interest rates, but can mean that the central bank buys large amounts of Treasury debt (quantitative easing), and that private banks, funds, etc. are induced/compelled to buy a lot of new Treasury debt issues as well—with the help of the central bank. For years after the global financial crash, this “did not cause inflation” (until 2019, when it suddenly did); but it did cause economic growth stagnation, no productivity growth, and severe wealth inequality, not only in the United States but in Europe and Japan.
