That’s the conclusion of a new report by Morgan Stanley analyst Arnaud Mares.
And what, you may ask, is financial oppression? Speaking from the perspective of investors in sovereign debt, Mares defines it as “imposing on creditors real rates of return that are negative or artificially low.” Which doesn’t require outright default. Instead, it
[C]an take other forms: repaying debt in devalued money (e.g., through unanticipated inflation), taxation or regulatory incentives on institutions to purchase government debt at uneconomic prices.
Mares sees sovereign creditors as tempting targets when over-indebted governments decide which of their many fiscal promises they can’t keep. After all, elderly pensioners cast more votes than coupon-clipping bond holders. And he thinks current low yields provide little protection against that threat.
His piece is definitely worth a read if you want to consider a bearish view on U.S. and European sovereign credit.
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