There's some interesting data in the new Biden Budget. The budget assumes that inflation will be between 2.1 and 2.3 percent from 2022 to 2031. That will be above both short and long term interest rates. That means investors can expect a negative return on low risk assets--things such as bank deposit account and CDs--for the next decade. The chart below is an excerpt from the economic assumptions section of the Biden budget.
Financial repression--setting interest rates below the rate of inflation--will devastate small savers. This includes poor and middle income Americans. It will also hurt young people trying to accumulate wealth for the purchase of a home and the elderly who are generally more likely to favor low risk assets.
Financial repression also contributes to the growth of inequality. Wealthy individuals and the large banks have greater ability to take risk or to engage in sophisticated investment strategies that will yield higher returns. Poor and middle class Americans as well as smaller bank and financial institutions have less ability to bear risk.
This is further evidence that young Americans are and will face a far more difficult investing environment that previous generations did.
No comments:
Post a Comment