Savers unite! End 'financial repression'

Golden egg and money in a nest

If you worry about your savings, it’s hard to be optimistic about the future when someone like Mohamed El-Erian, co-head of Pacific Investment Management Co., says you’ll be facing "financial repression" for years to come.

But that’s exactly what the erudite, if sometimes opaque, El-Erian said in a recent report focusing on the global economy and markets three to five years out. (A separate report issued by Goldman Sachs economists suggested the Fed may suppress interest rates for another six years.)

"Financial repression," according to PIMCO's El-Erian, involves "governments seeking to impose on savers negative real rates of return."

Such repression, along with policies promoting "mild inflation," have become a major way for governments of developed countries -- particularly the U.S. -- to "accommodate their deteriorating debt dynamics." (Read: "Debase their currencies.")

Of course, this isn’t news.

We all know that creating negative real returns on traditional savings vehicles has been an objective of Fed policymakers for a while. Look no further than current CD rates for proof.

Seniors, many of whom depend not only upon Social Security and pension checks, but interest on Treasuries, CDs and savings accounts, to pay their bills, have been a prime target of this "repressive" policy.

What is news, however, is El-Erian’s almost revolutionary (if somewhat understated) slant.

Singling out the U.S., he essentially calls current monetary policy a violation of a social contract between government and savers.

"By targeting negative real interest rates (directly and through regulatory steps), policymakers will pursue financial repression that undermines the 'real return' contract that savers expect."

He likens this contract with other "social contracts… already stressed" by government initiatives, including pension and health care entitlements, and unemployment benefits.

Of course, Fed Board members would dispute this. They tell us not to worry, that we’re in a "moderate recovery," and that it’s "sustainable."

But why is it "sustainable?"

Because savers will continue to sit back docilely and accept negative returns indefinitely?

How can an economy based on discouraging savings -- on policies that "repress" savers -- be characterized as anything but sick?

Maybe I’m reading too much into El-Erian’s observations. But it’s refreshing to see someone with his credibility articulate the plight of savers.

Now all we need is a spokesperson with a bit more pizazz.

How about El-Erian’s PIMCO partner, Bill Gross, who recently wrote that "with governments attempting to impose financial repression, bond investors should revolt?"

Now, that’s a call to the barricades we savers can understand!