Monetary policy is reducing consumer spending
Larry Fink, Blackrock’s (BLK) chairman and CEO (chief executive officer), recently commented on the effects of the negative interest rate regime of central bankers around the world (ACWI) (VTI). He said, “A monetary policy intended to spark growth, then, in fact, risks reducing consumer spending.” This view was captured in Fink’s annual letter to shareholders, soon to be part of BlackRock’s 2015 Annual Report.
Bill Gross: Negative interest rates are damaging
Fink has warned the Markets of yet another ill effect of negative interest rates on an economy. For some time now, we’ve heard Janus Capital’s (JNS) Bill Gross deliberating on the damage caused by negative interest rates and how central bankers have distorted the financial (XLF) system. Central bankers around the world continue to surprise Gross by introducing negative interest rates. But he continues to stand by his stance that negative interest rates are damaging to an economy. In his recent investment outlook, Gross compared negative rates to Zeno’s paradox. Investing in negative interest rates is like locking in guaranteed loss, according to Gross.
Fink: People need to invest more today
Fink says negative rates “are taking on the ability of investors to save and plan for the future.” He added, “People need to invest more today to achieve their desired annual retirement income in the future.” So this need to save more is leading to a curb on spending. In his letter, Fink cites an example that shows why people may start cutting down on spending if interest rates remain low.
Negative rates, the key tool by which central bankers intend to spur spending in an economy[1. Can Central Banks Spur Inflation with Negative Interest Rates?] is proving to be counterproductive. It’s causing people to save more rather than spend.
In the next part of the series, we’ll see why Blackrock is looking to pull out of Japan due to concerns over Abenomics.