What wealth effect? asset gains nulled by income losses

The nervous laughter by Dachille in the below clip is uncomfortable and humbled but honest. For finance sponsored television, he makes some surprisingly candid admissions about how central bank policies are gutting the efforts of individual savers, pensions, life insurers and other critical institutions to be self-sustaining.  Although many keep hoping that asset managers are magicians (and the least worthy ones talk as if they are) the truth is they are not, and the last 10 years of financial policy madness has been a travesty of the commons. The sum effects are not wealth creating, but anti-wealth:  as yields have plunged from 5%+ to less than 2%, cash flows tank and the savings needed to fund future liabilities has risen by 70%.  No free lunch and no magic wealth effect. Time to face math.

The idea of central banks creating wealth by boosting asset values through low or even negative interest rates may prove costly for retiring Americans and those saving for their golden years, AIG Chief Investment Officer Doug Dachille told CNBC on Tuesday.

Dachille, head of the insurer’s massive $351 billion investment portfolio, said “all savers” are being negatively affected by easy monetary policies around the globe.

“All this reduction in interest rates, while it’s certainly been good for the appreciation of the asset side of everybody’s balance sheet, unfortunately it’s increased the value of the liability side of the balance sheet,” he said on “Squawk Box.”  Here is a direct video link.

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