Avoid bonds and be careful about stocks as governments in the developed world will start manipulating the credit system to inflate away their debt burdens, writes Russell Napier.
For the past two years, this column has focused on the key question that investors have to answer if they are to protect the purchasing power of their savings — what are the consequences of too much debt?
I have argued the consequence will be a rise in inflation that will not be matched by a rise in interest rates.
Just such an adjustment has now occurred. Ensuring that this gap between interest rates and inflation is maintained is the key part of what I previously described as the “financial repression” that will now be in place for at least a decade.
To keep interest rates low when inflation is high will ultimately require forcing savings institutions to buy government bonds. They will finance such purchases by selling other assets. Investors need to adapt to this new system to preserve the purchasing power of their savings.