WASHINGTON — The current low interest rate environment is wreaking havoc on savers, AIG Executive Vice President and Chief Investment Officer Douglas Dachille said in a recent interview.
Dachille added that he’s not sure central banks even realize that keeping interest rates low is having an adverse impact on the wealth effect.
Dachille made his comments recently on CNBC’s “Squawk Box” while being interviewed by Michelle Caruso-Cabrera.
The interview was prompted by a recent report in the New York Times about insurers having to raise premiums on life insurance and long-term care products because of the protracted low interest rate environment.
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“I don’t think they give a darn about the impact to potential savers,” Dachille said.“While it’s certainly been good for the appreciation of the asset side of everybody’s balance sheet, unfortunately it’s also increased the value of the liability side of the balance sheet.”
He added that central banks think that by lowering rates they will increase assets, which is inaccurate. “What they’re missing is, the wealth effect (is) only one side of the balance sheet of every person,” Dachille explained.
When you look at pension plans and insurance companies, he said, “there’s two sides to a balance sheet,” assets and liabilities… “So have we really created a wealth effect?”
Dachille’s comments received an empathetic response from the show’s host.
“I think you have one of the toughest jobs in the world,” Caruso-Cabrera said of Dachille. “I think maybe you’re second only to somebody who invests money for pension funds, because eventually they have to pay people their pensions and right now the ability to make any return on anything is so brutally hard.”
Caruso-Cabrera noted that insurance companies made headlines in recent days for raising premiums as a result of not getting adequate return on investments.