Writing in the asset management giant’s latest annual report, BlackRock’s chairman and chief executive said the actions of central banks are “severely punishing the world’s savers and creating incentives to reach for yield, pushing investors into less liquid asset classes and increased levels of risk, with potentially dangerous financial and economic consequences”.
And, he said, while there has been plenty of discussion about the asset price inflation that has come as a result of the extended period of low and, now, negative rates: “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.”
Reduce spending
According to Fink a 35-year old looking to generate $48,000 (£33,970, €42,095) a year at retirement needs to invest 3.2 times as much in a 2% interest rate environment as he or she would have to in a 5% world.
This reality has profound implications for economic growth, Fink argues, because “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”.
All of which leads, somewhat counterintuitively, to a situation where monetary policy intended to spark growth, then, in fact, risks reducing consumer spending.
Add to this the fact that people are living longer at the same time that technology continues to put downward pressure on employment and one has the makings of a savings crisis.
Retirement savings crisis
Indeed, Fink writes: “Governments around the world must adopt more aggressive plans to address the retirement savings crisis and the resulting broad set of economic risks.”
For Fink, the failure of governments globally to develop and execute plans for long-term growth and address the dire need for investment in infrastructure not only distorts the role of monetary policy and diminishes employment opportunities, but it also hurts savers by robbing them of vibrant economies to invest in.
“Taken in totality, these and other risks create a level of fragility in the global economy that we have not seen since the lead-up to the financial crisis. While there are some positive indicators, like sustained, albeit modest, growth in Europe and the United States, and the probability for ongoing recovery remains high, the tail risk if that recovery falters has profound and far reaching consequences.”
