BlackRock CEO Fink: Negative & Low Interest Rates Eat into Consumer Spending at Worst Possible Time, by Wolf Richter

The flip side of those low, low borrowing rates is no, no income from bonds and other savings vehicles. From Wolf Richter at

“A hostile landscape” – that’s what BlackRock CEO Larry Fink called the global investment, economic, and political environment in his gloomy annual letter to his shareholders. It starts out propitiously:

Investors today are facing tremendous uncertainty fueled by slowing economic growth, technological disruption, and social and geopolitical instability.

More specifically:

In China, growth is slowing with global effects.

In the U.S., the quality of corporate earnings is deteriorating, with record share repurchases in 2015 driving valuations – an indication of companies succumbing to the pressures of short-termism in place of constructive, long-term strategies.

And electoral politics muck up the global landscape further:

Polarizing elections in the US and Germany; government transitions in Spain, Taiwan and Canada; allegations of scandal in Brazil, and the UK vote in June on whether to leave the European Union will all continue to drive volatility.

But the impact of low and negative interest rates central banks have imposed on economies around the world is “particularly worrying,” he said. And yet, it’s swept under the rug.

There has been “plenty of discussion” on how low interest rates help trigger asset price inflation, as investors chase yield by loading up on riskier and less liquid asset classes – “with potentially dangerous financial and economic consequences.” But…

Not nearly enough attention has been paid to the toll these low rates – and now negative rates – are taking on the ability of investors to save and plan for the future. People need to invest more today to achieve their desired annual retirement income in the future.

For example, a 35-year-old looking to generate $48,000 per year in retirement income beginning at age 65 would need to invest $178,000 today in a 5% interest rate environment. In a 2% interest rate environment, however, that individual would need to invest $563,000 (or 3.2 times as much) to achieve the same outcome in retirement.

This reality has profound implications for economic growth: consumers saving for retirement need to reduce spending if they are going to reach their retirement income goals; and retirees with lower incomes will need to cut consumption as well. A monetary policy intended to spark growth, then, in fact, risks reducing consumer spending.

Is this why BlackRock is pulling its money out of Japan, where consumer spending, after two decades of ultra-low interest rates, and now negative interest rates, has been weak for just as long – and getting weaker?

To continue reading: BlackRock CEO Fink: Negative & Low Interest Rates Eat into Consumer Spending at Worst Possible Time

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