And it’s not some Tea Party tinfoil hat whacko who thinks so; it’s Mohamad El-Erian, co-CEO of PIMCO, the world’s largest bond fund, with over $1.3 Trillion under management.
- “The co-CEO of the world’s largest bond fund has warned America that it faces a combination of higher inflation, austerity and financial repression over the coming years as policy makers grapple with the impact of the financial crisis and the subsequent policy response.”
- “Think of the debt overhangs in advanced economies where projected rates of economic growth are not sufficient to avoid mounting debt and deficit problems,” said Mohamed A. El-Erian in speech at a PIMCO forum on growth.”
- “…El-Erian, who classifies financial repression as seeking to impose negative real rates of returns on savers.”
So what exactly does it mean to “impose negative real rates of return on savers”? A negative real rate of return is when the return you get on your investment doesn’t keep up with inflation. It’s like, say, having money in a bank savings account and getting 0.5% interest (because the Federal Reserve is keeping interest rates artificially low) while real inflation is running 8% per year (because the Federal Reserve is flooding the world with low interest rate / cheap dollars). The value of your money in your savings account is losing 7.5% per year. Inflation is stealing your buying power. And, since all monetary inflation can be traced directly to the Federal Reserve, that means the Federal Reserve is stealing your savings. Got it?
If we are so bold as to put 2 and 2 together, then, we quickly realize that the actions of the Federal Reserve amount to “financial repression,” theft from prudent people who try to save for a rainy day. Got pitchforks?