While its housing market collapses, the US lives in a Disney-like bubble on debt, according to Neil Dwane, the CIO of Investment management group RCM.
“The USA continues to proceed in its Disney-like bubble but debt ceilings, political ineffectiveness and a weak dollar allow complacency to build further as the US housing market collapses further,” said Dwane in an interview with CNBC on Tuesday.
Like PIMCO co-CEO Mohamed A. El-Erian, Dwane believes the only way out of trouble for America and other highly indebted nations is financial repression.
Interest rates kept below inflation rates so that the real value of debt is eroded over time, this is the only solution...unless we default,” said Dwane.
In this environment, Dwane believes investors should sell bonds and credit and buy equities whilst avoiding leverage.
With the EU debt crisis raging on despite the best efforts of policy makers in Brussels, Dwane is convinced more debt is not the answer.
“We are a year on but nothing has got any better and we are seeing clinical proof both that piling more debt on excess debt does not solve anything and also the banks and the sovereigns are closely interlinked. All this as Germany booms,” said Dwane.