Acton Institute Powerblog

Forms of ‘Financial Oppression’

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From Marketwatch today, “Morgan Stanley warns on sovereign defaults”:

“Outright sovereign default in large advanced economies remains an extremely unlikely outcome,” they said. But bondholders could suffer losses from forms of “financial oppression,” such as repaying debt with devalued currency, the analysts warned.

From last week’s Acton Commentary by Sam Gregg, “Deficits, Debt, and Self-Deception”:

Then there is the increased possibility that governments will resort to other, less-conventional means of deficit-reduction. As Adam Smith observed long ago in The Wealth of Nations, “when national debts have once been accumulated to a certain degree, there is scarce, I believe, a single instance of their having been fairly and completely paid.” Smith went on to explain that “the liberation of the public revenue, if it has ever been brought about all, has always been brought about by a bankruptcy; sometimes by an avowed one, but always by a real one, though frequently by a pretended payment.”

By “pretended payment,” Smith meant governments would seek to escape their debts by inflating the currency. In this way, governments could legally deny creditors what they are due in real terms, while simultaneously avoiding formal bankruptcy.

Of course, whenever a government resorts to inflation to diminish its debts, it has, for all intents and purposes, effectively acknowledged its insolvency. But such actions, as Smith noted, also constitute gross injustices against numerous innocents. Those who have been frugal and industrious suddenly find the value of their savings and capital arbitrarily reduced because of others’ financial irresponsibility. This also reduces the incentives for people to save and invest. For why should anyone bother to do so if they cannot be reasonably sure that the worth of their savings will not be suddenly diluted by government fiat?

Jordan J. Ballor Jordan J. Ballor (Dr. theol., University of Zurich; Ph.D., Calvin Theological Seminary) is a senior research fellow and director of publishing at the Acton Institute for the Study of Religion & Liberty, where he also serves as executive editor the Journal of Markets & Morality. He is author of Get Your Hands Dirty: Essays on Christian Social Thought (and Action) (Wipf & Stock, 2013), Covenant, Causality, and Law: A Study in the Theology of Wolfgang Musculus (Vandenhoeck & Ruprecht, 2012) and Ecumenical Babel: Confusing Economic Ideology and the Church's Social Witness (Christian's Library Press, 2010), as well as editor of numerous works, including Abraham Kuyper Collected Works in Public Theology. Jordan is also associate director of the Junius Institute for Digital Reformation Research at Calvin Theological Seminary. He has authored articles in academic publications such as The Journal of Religion, Scottish Journal of Theology, Reformation & Renaissance Review, and Journal of Scholarly Publishing, and has written popular pieces for newspapers including the Detroit News, Orange County Register, and The Atlanta Journal-Constitution. In 2006, Jordan was profiled in the book, The Relevant Nation: 50 Activists, Artists And Innovators Who Are Changing The World Through Faith. Jordan's scholarly interests include Reformation studies, church-state relations, theological anthropology, social ethics, theology and economics, and research methodology. Jordan is a member of the Christian Reformed Church in North America (CRCNA), and he resides in Jenison, Michigan with his wife and three children.

Comments

  • “In this way, governments could legally deny creditors what they are due in real terms, while simultaneously avoiding formal bankruptcy.”[…while also simultaneously pushing the public to abandon their currency for whatever they can get.]

    (…just thought I’d add a little embellishment to add to Gregg’s final point on savings.)

    Oh joy!