Tuesday, May 17, 2011
El-Erian: "Financial Repression" In the Form of a Negative Real Rate of Return for Savers Is Coming to America
As CNBC notes:
In other words, Pimco co-chair El-Erian is saying that the major flaws in the financial system will not be addressed, the government will keep on printing money, and that the inflation-adjusted return on investments for most Americans will be negative.
“Others are flashing orange, like the US, and already require future sacrifices, most likely through a combination of higher inflation, austerity and, importantly, financial repression,” said El-Erian, who classifies financial repression as seeking to impose negative real rates of returns on savers.
This policy will undermine the real return contract offered to savers and, in El-Erian’s view, come instead of any bold moves to address structural problems and imbalances.
“Secular baseline portfolio positioning should minimize exposure to the negative impact of financial repression, hedge against higher inflation and currency depreciation and exploit the heightened differentiation in balance sheets and growth potentials,” El-Erian added.