The well-known Egyptian-American businessman and economist Mohamed El-Erian says that, given the current economic environment, it is prudent to keep some cash on hand. However, he acknowledges crypto’s potential and says it deserves to be taken seriously.
El-Erian has been sounding the alarm about an impending financial crisis for years. He predicts that the current rate of inflation will eventually cause a recession, and he blames the Federal Reserve and other central banks for distorting the market.
During an interview published Wednesday in New York Magazine’s Intelligencer section, El-Erian criticized central banks for seeking to become the market’s “Best Friend Forever” by maintaining abnormally low interest rates.
He blames the Federal Reserve for exacerbating the situation by repeatedly claiming that the rising inflation was only “transitory,” a claim that it clung to for so long that the Fed has now had to try to regain its credibility by hiking interest rates so aggressively that it appears the global economy will be tipped into recession.
El-Erian elaborated on why the Fed was falling behind:
“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.”
Even though cash is losing a lot of value due to inflation, the economist claims he is holding onto a lot of it because he thinks it will protect him from even greater losses in the future.
While he doesn’t think Bitcoin will replace the dollar anytime soon, he does recognize that Bitcoin and other cryptocurrencies serve a useful purpose that “needs to be respected.”
However, he realizes the banking system will not give up its privileged status, and he says:
“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.”
Regarding Bitcoin’s continued viability as an inflation hedge El-Erian did not have high hopes. 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.
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