Pacific Investment Management Co., which runs the world’s largest bond fund, said “deteriorating debt dynamics” will stoke faster inflation and financial repression in the U.S. as well as at least one sovereign-debt restructuring in Europe.
In a report aimed at establishing a worldview for investors in the next three to five years, Pimco Chief Executive Officer Mohamed El-Erian raised the prospect of U.S. policy makers trying to force savers to accept returns below the rate of inflation as the government grapples with a budget deficit the White House reckons will reach $1.6 trillion this year.
“It is a world where several governments in advanced economies, and the U.S. in particular, opt for financial repression and mild inflation as the major way to accommodate their deteriorating debt dynamics,” Newport Beach, California- based El-Erian wrote in a report published today on the firm’s website. “It is a world that heals slowly and unevenly and remains structurally impaired.”
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