Financial Repression Coming to America: El-Erian

Unfortunately, I can’t say that policy makers with as little understanding of actual monetary as he has won’t do that type of thing.

(Nor can’t I say he isn’t talking position)

I can say they all seem heck bent on deficit reduction, which is probably the most severe and effective form of economic repression.

And $US short covering, in its various forms,
which may already be in the early stages as suggested in previous posts,
should reveal any underlying deflationary forces of repression.

Financial Repression Coming to America: El-Erian

May 17 (CNBC) — 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.

“Some are already flashing red, and they will force even more difficult decisions between restructuring and the massive socialization of losses, like Greece,” he added.

“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.

4 replies on “Financial Repression Coming to America: El-Erian”