Interest-inflation mix: Honey, they shrunk your savings
Investment guru Jim Rogers says that central bank policies are wiping out the saving class all over the world. He says that the saving class is getting wiped out acro-ss the globe because of the actions of governments and central banks. Dhirendra Kumar writes.india Updated: Mar 11, 2013 02:04 IST
Investment guru Jim Rogers says that central bank policies are wiping out the saving class all over the world.
Rogers says that the saving class is getting wiped out across the globe because of the actions of governments and central banks. Rogers, a famous investor and writer who was George Soros' partner in their first venture, the famed Quantum Fund, said in a recent TV interview that for the first time in history, "every major central bank around the world is printing money and trying to debase their currency."
This is keeping real rates of interest down, inflating asset prices and effectively destroying financial savings of individuals, "…the people who save their money and invest for their future are the ones that you build an economy, a society, and a nation on. But now, unfortunately, those people are being wiped out, because they are getting 0% return, or virtually no return, on their savings and their investments. We're wiping them out at the expense of people who went deeply into debt…"
Of course, Rogers is talking mostly about the rich economies and he's saying something that should have been obvious since 2008.
However, a version of this 'wiping out of savers' is well on its way in India. Real rates of returns on financial investments in India are below zero and have been so for a while now. Moreover, given the trend in consumer inflation they're going to stay there. Even though the RBI cannot be accused of 'printing money' with the gusto that Rogers accuses western central banks of doing, the net effect is the same. If our stock markets, commodity prices and oil prices well-integrated with the world, then our saving class is getting as much wiped out by the money printing as the saving class around the globe.
The prescription Rogers and others write for this is to 'be in real assets', those that are inflating as the flip-side to the devaluation of money. For us in India, that could mean a lot of things, including equities.
However, it's clear what it doesn't mean - keeping your money in some sort of a deposit and watching it shrink.