Mohamed El-Erian, the renowned Egyptian/American economist and businessman, believes cash is a good option for the economic uncertainties facing everyone. He does however believe that crypto has a future role to play and should be respected.
El-Erian has been warning of a financial collapse for the last several years. He believes that the current high inflation levels will lead to recession, and the role the Fed and other central banks have played has led to a distortion of the financial system.
In an interview yesterday by the New York Magazine, for its Intelligencer section, El-Erian spoke of the central banks’ error in trying to become the market’s “Best Friend Forever” by keeping interest rates artificially low for such a long time.
He feels that the problem was compounded, in this case by the Federal Reserve, by insisting that the burgeoning inflation was only “transitory”, and holding on to this belief for so long meant that the Fed has had to try and regain its credibility by hiking interest rates so fiercely that it looks as though world economies will be tipped into recession.
El-Erian explained how the Fed was lagging behind reality:
“I’ve never seen a central bank issue projections every quarter and former Fed officials say they are unrealistic and dismiss them. And people who worry most about hard landings will tell you that because the Fed looks at lagging data, it doesn’t realise how quickly the economy slows. And they’re not moving these things. So that’s the worry.”
The economist says that he is mostly in cash right now, and even though it is losing a high percentage of its purchasing power through inflation, he believes that it could still shield him from potentially more major losses.
As for Bitcoin, he doesn’t believe that it will be the next global currency, but he does acknowledge that Bitcon and cryptocurrencies perform a role that “has to be respected”.
However, he sees that the financial system will not give up its special privileges, saying:
“you can’t escape the formal financial system. You can’t escape regulators. Ask yourself, “Will issuers of currency give up all the advantage they get from issuing currency to Bitcoin?” It’s not going to happen.”
On Bitcoin still having some weight in becoming an inflation hedge El-Erian was not optimistic. He said:
Bitcoin has performed miserably this year — the high was $68,000, and we’re now at $19,000. But that’s not a reflection of Bitcoin not being able to navigate inflation. This is a reflection that Bitcoin benefited enormously from the injection of liquidity by the Fed. And now, like every other asset, it is suffering from the withdrawal of liquidity.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.