Financial Repression: Why Real Assets Matter Now
Market commentary, 23 August 2026: Central banks are buying government bonds again — and Japan already shows where that road leads. A look at what it means for savers, and why real assets in Germany are one response.
Who loses when central banks erode debt through financial repression?
When a central bank erodes debt over time instead of defaulting on it, the state doesn't lose. Whoever holds cash, savings accounts or conventional government bonds does — slowly, which is exactly why most people don't notice until it's too late.
What is Japan's 13-year lesson in financial repression?
Japan's central bank bought more than half of its own government bonds and capped long-term rates in 2016. Since 2013 Japanese government bonds have lost around 51% of their value against the dollar: no default, just a slow erosion of savers' purchasing power.
Japan carries the highest debt-to-GDP ratio of any developed economy — around 215%. For thirty years, a sovereign default has been expected. The instrument of bond buying and capped rates isn't even Japanese in origin — the US used the same tool in 1942 to erode its wartime debt.
The result for Japanese savers, according to a recent analysis by Ray Dalio: Japanese government bonds lost around 51% of their value against the dollar since 2013, and 76% against gold. Japanese wages fell roughly 55% behind US wages over the same period.
The yen sits at a 40-year low. No default, no headline crisis — just a slow, government-engineered erosion of savers' purchasing power. Economists call this pattern financial repression: reducing the real value of government debt through below-market interest rates and central bank bond purchases, rather than default.
215% Japan's debt-to-GDP ratio; −51% JGB value vs. USD since 2013; −55% Wage gap vs. US since 2013; 40 years Yen at its lowest since.
Does the ECB already have the same tool on the shelf?
Yes: a structural securities portfolio, announced for when the Eurosystem balance sheet expands again, and the Transmission Protection Instrument, in place since 2022 and never activated.
The eurozone entered a stagflationary patch in 2026: inflation running above the ECB's target, growth stalled, and the ECB's first rate hike since 2023. A heavily indebted currency union combined with a central bank that can't shrink its balance sheet indefinitely is historically exactly the setup in which government bond buying quietly resumes.
The ECB has already announced the mechanism: a structural securities portfolio, to be introduced once the Eurosystem's balance sheet starts expanding on a lasting basis again — in plain terms, once the central bank starts holding government bonds permanently again, the way the Bank of Japan has since 2013.
On top of that, the Transmission Protection Instrument, in place since 2022 and never activated, lets the ECB buy unlimited amounts of a single eurozone country's government bonds in a crisis. Both instruments are officially documented policy, not speculation.
Which assets hold their value in such a cycle?
Real assets with limited supply. For investors that means a well-structured income property, such as a German investment property.
What tends to hold its value through this kind of cycle is real assets with limited supply. For investors, that means a well-structured income property — a German investment property (Kapitalanlage-Immobilie), whether a heritage building with accelerated German tax depreciation (Denkmal-AfA under §7i) or a care-home investment property (Pflegeimmobilie) — is not a lifestyle purchase but an active hedge: rental income plus a tax-advantaged depreciation schedule, while cash savings quietly lose real value.
Read the overview: tax-optimised German investment property →
This article is a personal assessment of the macroeconomic situation, not investment advice.
Frequently asked questions
What is financial repression?
Financial repression is when a government reduces the real value of its debt not by defaulting, but by keeping interest rates below the inflation rate — usually with a central bank buying up government bonds. Savers holding cash, savings accounts or bonds lose purchasing power over time, even though nothing ever technically “defaults”. The economist John Maynard Keynes described the underlying mechanism as early as 1919.
Is the European Central Bank planning to buy government bonds again?
The ECB is currently shrinking its balance sheet. But in 2024 it officially announced it will introduce a “structural securities portfolio” once the Eurosystem balance sheet starts expanding on a lasting basis again — in effect, a mechanism for renewed long-term government bond holdings. The ECB's Transmission Protection Instrument, in place since 2022 and never yet activated, also allows unlimited bond purchases of a single eurozone country's debt in a crisis.
Why look at Germany specifically for real assets right now?
Germany combines legal and political stability with a currency (the euro) whose central bank has already signalled the same kind of bond-buying mechanism that drove Japan's multi-decade currency erosion. German real estate also benefits from specific depreciation regimes for investors, such as the heritage-building tax allowance (Denkmal-AfA, §7i EStG), which are not available on ordinary residential property abroad — the German term for this asset class is Kapitalanlage-Immobilie (investment property).
How does the German heritage-building tax allowance (Denkmal-AfA) work for investors?
Under §7i of the German Income Tax Act, investors in a listed heritage building can depreciate the renovation share of the purchase price at 9% per year for 8 years, then 7% per year for 4 years — 100% of the renovation cost written off against German tax liability over 12 years. It is one of the few remaining accelerated depreciation schemes in German tax law.
Free initial consultation
Non-binding, personal and tailored to your tax profile. Together we check which model fits your situation — listed-building depreciation (Denkmal-AfA), QNG new build or §7b special depreciation.
Related pages
Diese Seite auf Deutsch lesen
For 13 years Japan has shown how central banks reduce debt through currency debasement. What this means for property investors in Germany.
Related: $40 Trillion in US Debt
US debt hit $40 trillion this week. A 2024 IMF study shows how the US handled a similar debt load in 1946 — and what it means for investors now.
Read the overview: tax-optimised German investment property →
Tax-optimised German investment property: Denkmal-AfA §7i and QNG new-build §7b, advice in English. §34c GewO, no fee for the buyer.
Property cash flow calculator (Cashflow-Rechner Immobilien): what is left after tax (Steuer), interest and repayment?
This one goes further: cash flow (Cashflow) before and after tax, return on equity (Eigenkapitalrendite), IRR estimate and break-even year, for listed buildings (Denkmal), QNG and §7b new builds (Neubau).
Investment property FAQ: what do investors ask about tax, KfW and the process?
For some properties the developer or seller pays our fee; for others we receive nothing – their prices are commission-free.
Content responsibility: Siegfried Perini — Managing Director of AUP Finanzservice, §34c GewO (property broker, loan intermediary), in the industry since 1992. Specialised in investment property with listed-building depreciation (Denkmal-AfA), QNG new builds and §7b special depreciation. No tax or legal advice — please consult your tax adviser.