More by the Same Author
2012-07-02 Will Europe Be Willing but Disabled? by Mohamed A. El-Erian of Project Syndicate
The eurozone crisis might break European leaders inherent resistance to compromise, collaboration, and common action. But the longer they bicker and dither, the greater the risk that what they gain in willingness will be lost to incapacity. When it comes to describing Europes ever-worsening crisis, metaphors abound.
2012-06-12 Time Running Out for European Credibility by Mohamed A. El-Erian of PIMCO
Mondays disappointing market reception to the bailout package for Spanish banks is a reminder to European policymakers of something that is more than familiar to veteran sovereign crisis managers in emerging countries: The greater the erosion of policymaking credibility, the harder it is to get the private sector to buy into your plans. As a result, rather than crowd in private capital, seemingly bold policy measures end up facilitating its exit. The answer is not to do less but, rather, to be more comprehensive and coherent in what you do.
2012-06-07 Remarks to the 12th Annual International Seminar on Policy Challenges for the Financial Sector by Mohamed A. El-Erian of PIMCO
Let me start with what I will refrain from doing specifically, I will not pre-empt the detailed discussions that you may have on such topical issues as regulatory principles, SIFIs, market infrastructure, stress testing and, of course, the rapidly changing nature of sovereign risk in advanced countries. Instead, I will try to touch on three more general topics that, in addition to your critical detailed analysis, I believe are important in assessing the potential impact of regulatory reform in terms of the past, present and future.
2012-06-05 Is America Healing Fast Enough? by Mohamed A. El-Erian of Project Syndicate
Six internal factors suggest that the United States economy is slowly healing. For some observers, these factors were deemed sufficient to form the critical mass needed to propel the economy into escape velocity. While I hoped that they might be proven right, the recent stream of weak economic data, including Mays timid net job creation of only 69,000, confirmed my doubts.
2012-06-04 Investors Position for a Synchronized Global Slowdown by Mohamed A. El-Erian of PIMCO
The insufficient job creation, stagnant earnings and alarming long-term unemployment highlighted by Mays disheartening jobs report underscore Americas persistent unemployment crisis. The numbers also speak to a synchronized slowdown that is now taking hold of the global economy a phenomenon that is being signaled by virtually every other data release out of Europe, the U.S. and emerging countries.
2012-05-18 Who is Responsible for the Greek Tragedy? by Mohamed A. El-Erian of Project Syndicate
With a traumatic implosion economic, financial, political, and social now taking place in Greece, we should expect heated debate about who is to blame for the country's deepening misery. There are four suspects all of them involved in the spectacular boom that preceded what will prove to be an even more remarkable bust.
2012-05-15 Policy Confusions & Inflection Points by Mohamed A. El-Erian of PIMCO
During this important annual event, PIMCO colleagues from around the world debate the major trends that will play out over the next three to five years, focusing not on what should happen, but what is likely to happen. Based on the 2012 Secular Forum discussions, we expect three themes to play out: continued policy and political confusion, overly incremental public and private sector responses and, therefore, greater potential for inflection points. In terms of regions, the status quo is no longer an option for Europe.
2012-05-07 European Elections Complicate Outlook by Mohamed A. El-Erian of PIMCO
Markets will likely price in a larger risk premium following Sundays election outcomes on account of political uncertainty and the related range of specific risk factors, including greater concerns about creditworthiness and eurozone exit. This speaks, first and foremost, to the spreads of certain European sovereigns, with negative spillover effects on equities and other risk assets. Fortunately, there is a silver lining, though it will take some time. It comes in the form of a hope that the electorates message on Sunday will be interpreted by Europes leaders as a call for bold action.
2012-05-01 Germanys Neighborhood Watch by Mohamed A. El-Erian of Project Syndicate
Ultimately, there can be no strong Germany without a stable eurozone; no stable eurozone without a strong Germany; and no global economic stability without both. Germans might not like their choices, but refusing the responsibility of leadership is one option that Germany does not have.
2012-04-20 How European Politics Could Impact Markets by Mohamed A. El-Erian of PIMCO
Fed up with how all the economic, financial and policy news out of Europe have been contributing to equity market volatility? Well, not only will this continue but, now, we must also get ready for something new over the next few weeks: the impact of elections. In addition to their consequential national impact, the series of forthcoming elections involve cross-border implications that influence prospects for regional policy coordination and, therefore, the nature and speed of the solutions for Europes debt crisis.
2012-04-16 What the Return of Market Volatility Tells Us by Mohamed A. El-Erian of PIMCO
Signals of a challenging outlook are much louder in European bond markets. Last week, yields on peripheral government securities went from flashing orange to again flashing red, with Spanish risk spreads near or at record levels. All this speaks to the unsettling situation of markets that remain highly dependent on policymakers who, themselves, are stuck in the muddled middle: unable to deliver sustainable outcomes or to exit from their market interventions. This is the unfortunate reality of an "unusually uncertain" outlook, blunt policy tools, and a rather dysfunctional political context.
2012-04-12 Evolution, Impact and Limitations of Unusual Central Bank Policy Activism by Mohamed A. El-Erian of PIMCO
I will speak in a central bank and to central bankers about the role of their institutions particularly the Federal Reserve and the European Central Bank in todays highly complex, perplexing and historically unusual policymaking environment. I will go further and try to link actions to motivations. And, when it comes to implications, I will attempt to put forward questions and hypotheses that, I believe, are critical for the future of the U.S. and global economies but for which I, like others, have only partial answers.
2012-04-05 Markets Wake Up to Central Banks' Complicated Tradeoffs by Mohamed A. El-Erian of PIMCO
This week's market action serves as a vivid reminder of how dependent valuations are on central bank policies, and especially the aggressive provision of liquidity by the Fed and the ECB. The question for markets thus boils down to whether central banks will do more; and the issues these institutions face are extremely and increasingly complex. The global sell-off started on Tuesday with the release of the minutes of the most recent FOMC meeting. They were read by many as signaling less eagerness on the part of the Fed to embark on yet another round of liquidity injections.
2012-04-02 The Hazard of Second Best by Mohamed A. El-Erian of Project Syndicate
The international community appears increasingly intent on settling for second best on two key issues to be discussed this month in global meetings in Washington, DC: the lingering (if currently dormant) European debt crisis, and the selection of the World Banks next president. It is not too late to change course.
2012-03-22 The American Recovery by Mohamed A. El-Erian of Project Syndicate
The US has gone through an arduous period of intervention and rehabilitation since the global financial crisis in 2008 sent it to the economic equivalent of the emergency room. The question now is whether the US economy is ready not just to walk, but also to run and sprint.
2012-03-09 Remarks at the Launch of USAIDs Policy on Gender Equality and Women Empowerment by Mohamed A. El-Erian of PIMCO
Many of us have a responsibility, indeed an obligation, to do whatever we can to ensure that both conscious and unconscious biases are better identified and minimized. This is a multi-year, multi-faceted effort. As illustrated by the USAID policy, it involves research, education, advocacy and action; as well as measurement, accountability and mid-course corrections. For all these reasons, we admire the important work being done on gender equality and the empowerment of women. We strongly endorse the importance of greater and equal opportunities.
2012-02-15 From Argentina to Athens? by Mohamed A. El-Erian of PIMCO
There are way too many discomforting similarities between what has been happening in Greece recently and Argentinas 2001 path to economic and financial turmoil.
Unless Greek and European officials reflect on key lessons from Argentina's experience back then, the parallels could also end up including a financial meltdown, a deep output collapse, and social and political turmoil.
Greece need not and should not - continue to follow Argentinas example of eleven years ago.
2012-02-03 Still Losing the War on Unemployment by Mohamed A. El-Erian of PIMCO
The first Friday of every month, you will find me among those eagerly waiting for the release of the latest government data on jobs. Such eagerness, however, should not be confused with joyfulness. While the numbers have markedly improved over the past year, too much of the commentary has been overly partial and, sometimes, dangerously misleading a situation that is likely to grow worse in the run-up to the November elections.
2012-01-24 Egypts Unfinished Revolution Will Succeed by Mohamed A. El-Erian of Project Syndicate
A year ago, as the World Economic Forum convened in Davos, Egyptians of all ages and religions took to the streets and, in just 18 days of relatively peaceful protests, removed a regime that had ruled over them with an iron fist for 30 years. Today, their revolution is, unfortunately, incomplete and imperfect, but make no mistake: Egyptians will finish what they started.
2012-01-19 Repairing the Global Plumbing by Mohamed A. El-Erian of Project Syndicate
More than three years after the global financial crisis, the world still has a nasty plumbing problem: credit pipes remain clogged, and only central banks are working to clear them. Fortunately, it is not too late to build broader pipes that compliment and replace the damaged infrastructure.
2012-01-13 Do Friday's European Downgrades Matter? by Mohamed A. El-Erian of PIMCO
Friday's downgrades of European sovereign ratings debt is all over the place-from those dismissing it as old news to those viewing it as part of a larger and consequential transformation of the international monetary system. What follows is an attempt to provide a guide to the multi-faceted implications. It focuses on three types of consequences: 1 those that are unambiguous and already reflected, albeit not fully, in market valuations. 2 those that are less well understood but will become clearer. 3 those that are consequential but where the analytics are still largely unknown at present.
2011-12-21 The New International Economic Disorder by Mohamed A. El-Erian of Project Syndicate
A new economic order is taking shape in front of our eyes, as the old Western powers and the emerging worlds major new players converge. But the forces driving this convergence are not those that generations of economists envisaged when they pointed out the inadequacy of the old order.
2011-12-16 Downward Spiral by Mohamed A. El-Erian of PIMCO
Europe's crisis is morphing again -- for the third time in only 12 months -- and the implications for the global economy are even more complex, unsettling, and troubling.
2011-12-10 Neither a Quick nor Comprehensive European Fix by Mohamed A. El-Erian of PIMCO
European leaders still need to do a lot more, and quickly, if they are to catch up and get ahead of the crisis. Accordingly, and regrettably, the specter of volatility caused by European headlines will not recede for long. Investors need to continue to watch and worry about Europe.
2011-12-05 Prepare for a Different Financial Landscape by Mohamed A. El-Erian of PIMCO
With the European crisis continuing to dominate the news, many people now realize that todays global economy faces an unusually uncertain outlook. Indeed, Europes turmoil is but one of the multiple global re-alignments in play today. What may be less well recognized is the extent to which specific sectors are already changing in a consequential and permanent manner. This is particularly true for global finance where volatility has increased, liquidity is evaporating, and the role of government is pronounced but inconsistent.
2011-11-28 3 Things to Watch This Week by Mohamed A. El-Erian of PIMCO
The business sections of this weekend's newspapers understandably focus on last week's disappointing stock market performance (the worst in two months for the S&P) and another round of credit downgrades for European sovereigns (Belgium, Hungary and Portugal). Yet, these are essentially lagging indicators. The stories that may well materialize in the next few weeks will be more heavily influenced by what happens this week to Europe's latest yield curve inversion, core bond rates, and policy announcements.
2011-11-18 The Anatomy of Global Economic Uncertainty by Mohamed A. El-Erian of Project Syndicate
The sense of uncertainty prevailing in the West is palpable, and rightly so. People are worried about their futures, with a record number now fearing that their children may end up worse off than them. Unfortunately, things will become even more unsettling in the months ahead.
2011-11-02 Could America Turn Out Worse than Japan? by Mohamed A. El-Erian of PIMCO
There was a time when America looked down on Japan for the latters inability to deal with its economic problems. No more. Like Japan, America is now realizing how difficult a post bubble economy can be. The fear is that it will also find out that that it lacks some of Japans attributes needed to cope with long years of economic stagnation. The US has no time to waste to build on the important, albeit small progress that has been made in recent weeks. If it does not, there is a risk that the countrys economic fate could end up being even worse than what Japan has experienced.
2011-10-19 America at Stall Speed? by Mohamed A. El-Erian of Project Syndicate
Judging from the skittishness of both markets and consensus expectations, the United States economic prospects are confusing. One day, the country is on the brink of a double-dip recession; the next, it is on the verge of a turbo-charged recovery, powered by resilient consumers and US multinationals starting to deploy, at long last, their massive cash reserves. In the process, markets take investors on a wild rollercoaster ride, with the European crisis (riddled with even more confusion and volatility) serving to aggravate their queasiness.
2011-10-04 The Markets for Contagion by Mohamed A. El-Erian of PIMCO
Markets are in the unusual and very uncomfortable position of being wholly dependent on policymakers and politicians. The investment relevance of company analysis, no matter how good, pales in comparison to the importance of getting the policy calls correct. Faced with this, investors should also remain cautious. Yes there are already opportunities but they will be even more attractive down the road given that the world is now subject to both a synchronized slowdown and de-leveraging.
2011-10-03 Why Good Companies May Get Even Cheaper for Awhile by Mohamed A. El-Erian of PIMCO
Should investors buy good companies trading at historically attractive prices? According to conventional wisdom, this simple question has an equally simple answer - "of course" - that is supported by the vast majority of historical cases. But before acting on conventional wisdom, investors should ask themselves why so many unthinkables have turned into reality over the last few months. By doing so, they would be forced to consider important qualifiers arising from historic structural changes buffeting the global economy and, therefore, financial markets.
2011-09-26 Volatility Is With US for Awhile Longer by Mohamed A. El-Erian of PIMCO
There were three culprits for last week's market dramatic sell-off: first, yet another downgrading of the outlook for global growth, including in the form of a stark warning from the Federal Reserve on "significant" downside risks (and, for an institution that selects its words very carefully, significant translates to something nearer to horrid); second, recognition that this situation increases the challenges facing policymakers who, for the large part, have been MIA for way too long; and third, a worrisome amplification of the crisis in Europe.
2011-09-20 Countering the Contagious West by Mohamed A. El-Erian of Project Syndicate
Despite their strong fundamentals, emerging countries still feel vulnerable in the face of the Wests economic weakness, policy shortfalls, and political paralysis. Moreover, they know from experience that there are no easy and immediate solutions to the Wests debt overhang and structural impediments to growth. And they have no illusions about the potential for effective global policy coordination. In such circumstances policymakers in emerging markets will eschew boldness for prudence. They will hope for a short winter for the global economy, but they will plan and position for a long one.
2011-09-19 Time for a Smaller and Stronger Eurozone by Mohamed A. El-Erian of PIMCO
The euro should, indeed must, be saved. And it can be saved provided Europe is willing to make hard structural and institutional decisions. The time has come for the eurozone -- Germany and France in particular, but also Austria, Finland and the Netherlands -- to decide how they would like European integration to evolve; and they need to do so quickly. They have two conceptual choices: restore stability to the current, heterogeneous zone; or opt for a smaller but stronger one.
2011-09-19 Market Preview - What to Look for This Week by Mohamed A. El-Erian of PIMCO
Global markets again find themselves in the uncomfortable back seat of a car driven erratically by policymakers. The hope is that policy responses in both America and Europe will enable them to build on last week's solid gains and, thereby, improve the outlook for jobs and economic growth. This can happen if most/all of what follows materializes. Top-down issues are still important drivers of markets. It is not a comfortable place for markets given the recent history of recurrent policy shortfalls and debacles. Yet it is also reality for now.
2011-09-12 The G-7 Disappoints Again by Mohamed A. El-Erian of PIMCO
Unlike recent G-7 meetings of finance ministers and central bankers that were essentially ignored, there was quite a bit of interest in the one held this past weekend in Marseille. That interest turned out to be misplaced, however, as the G-7 delivered little of substance yet again. The G-7 issued a communiqu whose disappointing lack of content contrasts sharply with the deteriorating health of the global economy, the intense risks ahead, and legitimate policy confusion. The G-7 is fortunate that it is not required to justify the expenses of its meetings in terms of what is achieved.
2011-09-09 A Powerful Obama Speech by Mohamed A. El-Erian of PIMCO
At long last, President Obama did enough this evening to upgrade the quality of the nation's economic debate. He presented a credible program that is focused on the right structural areas. Now he must strengthen it and complement it with a sensible fiscal component; and Congress must discuss it in a cooperative and constructive manner. A lot is at stake, especially for those that have been jobless for too long but also for American society as a whole. Let us hope that Washington is, collectively, able and willing to follow through.
2011-09-08 The Changing Landscape of Global Investing by Mohamed A. El-Erian of PIMCO
National and global realignments are fundamentally and durably changing the global investment landscape.
Investors face the challenge of recalibrating some of the traditional parameters that are key to managing risk and delivering returns.
There are also implications for investment management firms which are yet to be sufficiently reflected in the thinking and actions of the industry as a whole.
2011-09-06 Tuesday\'s Market Preview Is Not Pretty: El-Erian by Mohamed A. El-Erian of PIMCO
Again, already fragile U.S. markets will be influenced by developments on the other side of the Atlanticand in a week in which there is great anticipation for President Obama's "mission critical" speech on the American economy. Europe's deepening debt and growth crisis amplifies the importance Obama's effort to deal with America's deepening unemployment and growth crisis; and does so by raising both the stakes and the challenges for the President. Tighten those seat belts. It will be a bumpy and volatile week as markets are held hostage to policy developments in both America and Europe.
2011-08-22 Why Washington Urgently Needs to Break America's Negative Feedback Loop by Mohamed A. El-Erian of PIMCO
It is tempting to dismiss all this market volatility as just irritating "noise" rather than insightful "signals". But, be very careful before you are opt for this seemingly comforting interpretation. There is a lot in play today that requires a bold response out of Washington. This is not just an American phenomenon. Europe is in a much worse situation. And, if policymakers on both sides of the Atlantic don't get their act together, they will run out of tools that have a chance of being effective circuit breakers. Things could get a lot worse before they get better.
2011-08-17 Europes Central Bank at Sea by Mohamed A. El-Erian of Project Syndicate
My sense is that politicians will opt for a weak variant of greater fiscal union, but that, ultimately they will fail to execute it for the eurozone as we know it today. After some considerable volatility, a smaller and more robust currency union will emerge; and, importantly, Europe will avoid the euros demise and a total breakdown of the eurozone. No matter how you view it, the coming endgame will be neither simple, nor orderly. Had the ECB known this at the start of Europes debt crisis, it might have resisted taking so many risks with its balance sheet and reputation.
2011-08-12 Policy Dithering Will Further Fuel the Crisis by Mohamed A. El-Erian of PIMCO
The world economy is now in the grips of a damaging feedback loop involving deteriorating fundamentals, lagging policy responses and destabilised financial markets. If policymakers do not act boldly, and do so in a globally-coordinated fashion, the world risks tipping into a prolonged recession with worrisome institutional, political and social consequences.
2011-08-10 Unprecedented Fed to the Rescue by Mohamed A. El-Erian of PIMCO
After Mondays gut wrenching 635 point fall, the Dow Jones index surged an impressive 430 points on Tuesday. In the process, investors experienced a wild 640 point intra-day roller coaster! Gold prices set another record while Treasury yields fell sharply, with the 2-year closing at an eye popping 0.2% and the 5-year at an equally stunning 1.0 percent. Tuesdays combination of unusual, if not unprecedented, market moves had a lot to do with the Fed. Once again, the institution came to the rescue of an equity market under severe pressure, and did so in a bold manner.
2011-08-08 U.S. Downgrade Heralds a New Financial Era by Mohamed A. El-Erian of PIMCO
There will be endless debate on whether S&P, the rating agency, was justified in stripping America of its AAA rating and even attaching a negative outlook to the new AA+ rating. But this historic action has now taken place, and the global system must adjust. There are consequences, uncertainties, and a silver lining. Not so long ago, it was deemed unthinkable that America could lose its AAA. Indeed, risk free and US Treasuries were interchangeable terms so much so that the global financial system was constructed on the assumption that Americas AAA was a constant at the core.
2011-08-05 Making Sense of Thursdays Violent Market Sell-Off by Mohamed A. El-Erian of PIMCO
Technical factors played a role in Thursday's unsettling market moves, including the disorderly across-the-board collapse in the price of risk assets in the final hour of trading and the related surge in U.S. Treasurys. But they were not the cause. Rather, they amplified three factors that will determine the fate of markets in the weeks ahead. First, it is now undeniable that the U.S. economy is weakening across the board. The second factor relates to confidence. Markets are worried that policymakers will not be able to put the economy back on the right path. And then there is Europe.
2011-08-01 America Will Avoid Default But There's A Lot More to Do by Mohamed A. El-Erian of PIMCO
Politicians are taking an important step this weekend to remove the threat of a debt default and to focus more credibly on problems facing the economy. We should thank them for that. But we should also remind them that their work is far from done. Washington should waste no time in redoubling efforts to remove the multiple policy uncertainties and structural impediments that stand in the way of restoring America on the path of high growth and plentiful job creation. Anything short of that will imply further economic and social deterioration, and a greater erosion of America's global standing.
2011-08-01 Why Global Debt Dramas Recur by Mohamed A. El-Erian of PIMCO
Neither Europe nor America can sustain the sort of economic recovery that would make a meaningful dent in their debt dynamics. As a result, different governments are opting for different approaches, including harsh austerity, financial repression and, in one case, a potential debt restructuring.
De-levering pressures will be with us for years, and governments will mix and match from the menu of options. Accordingly, periodic debt dramas will recur. And we all need to understand the dynamics and the likely choices governments will make going forward.
2011-07-28 The 'how' undermines the 'what' of the debt ceiling debate by Mohamed A. El-Erian of PIMCO
I am confident that Washington will find a way to compromise on a mini-deal, rather than a grand bargain, that raises the debt ceiling and avoids a debt default. They may even manage to evade a downgrade of the nations vaunted AAA credit rating, though this is more uncertain. But fiscal solvency is not merely a function of deficits and debt. It is also highly sensitive to economic growth: The lower an economys growth rate, the higher a budget deficit is likely to be, the larger the debt accumulation, and the greater the need for yet another round of fiscal austerity to safeguard solvency.
2011-07-15 Europe Must Consider Radical Options by Mohamed A. El-Erian of PIMCO
Europe has been applying a liquidity solution to a solvency problem. The approach, which has bought time, is near exhaustion as it has failed to improve debt sustainability, restore access to markets and put in place the conditions for sustainable growth. Time is approaching for a radical change, with policymakers potentially facing two options. They could opt for greater fiscal union to include cost-effective guarantees and transfers, rather than just loans, in exchange for individual countries sacrificing a significant amount of national sovereignty.
2011-07-08 America Needs a Grand Bargain, But All It’s Getting Is a Mini Deal by Mohamed A. El-Erian of PIMCO
To address its economic woes, America needs to transition from a series of ad hoc measures to a more holistic policy approach. Aided by President Obamas personal and highly visible involvement, politicians are likely to meet the August 2nd debt ceiling deadline. A "grand bargain" can serve as the catalyst for unifying diverse policy actions into clearer, more comprehensive drivers for growth and medium-term fiscal sustainability. This would intensify pressure on other systemically-important parts of the world-particularly Europe and China-to join the US in striking their own grand bargains.
2011-07-06 America and Britain's Economic Policies Will Soon Be Similar by Mohamed A. El-Erian of PIMCO
By imposing austerity programs,t he U.K. is hoping to free up resources that can be devoted to pay down debt. The U.S. is hoping to create resources to pay down debt via economic growth – an approach that can have disappointingly narrow feasibility. Other options include restructuring or defaulting on debt, inflating out of it and imposing financial repression by paying creditors less than they deserve.
2011-07-05 Is Europe’s Debt Crisis a “Lehman Moment” for America? by Mohamed A. El-Erian of PIMCO
Europe’s debt problem is a headwind for what remains a disappointing U.S. economic recovery.
There is now broad-based recognition of America’s persistent economic weakness. The Federal Reserve has been forced again to revise downwards its growth projections for both 2011 and 2012.
In order to avoid a repeat of the total Lehman paralysis in the face of an external shock to the U.S. economy three conditions must be met: a banking system that remains robust, no disruptions to money market funds and limited blockage to the plumbing of the country’s payments and settlement system.
2011-06-28 Five To-Do's for the IMF's New Managing Director by Mohamed A. El-Erian of PIMCO
Circumstances have catapulted Christine Lagarde into the role of leader of the IMF: the world’s most influential and fastest-responding multilateral institution. Lagarde will need to hit the ground running if her tenure as IMF managing director is to be an inspiring story of institutional transformation. She should waste no time in establishing a legitimate selection process for the next managing director that is truly based on merit. She must strengthen the analytical robustness of the IMF’s response to debt crises, and prepare the Fund’s balance sheet for the risk of future impairment.
2011-06-24 On Governments as Portfolio Managers by Mohamed A. El-Erian of PIMCO
Energy markets are focusing intensely on the price impact of today’s International Energy Agency decision to release oil supplies.
Governments (and central banks) getting pulled deeper into markets as portfolio managers, as opposed to regulators and supervisors.
Policymakers are trying to differentiate between good and bad inflation – namely, enhancing the former and countering the latter.
2011-06-21 What's Weighing Heavily on the Markets by Mohamed A. El-Erian of PIMCO
Balance sheets and other structural problems will repeatedly impact headlines (and weigh on markets) unless policymakers alter their course. European policymakers and the IMF have spent the last year treating Greece’s predicament as a liquidity problem as opposed to what it is: a solvency and growth crisis. By ignoring the basic issue of Greece’s solvency, some previously pristine balance sheets are now contaminated. In the U.S., political dithering (and bickering) is complicating the country’s ability to deal effectively with structural impediments.
2011-06-15 America’s Dangerous Debt Ceiling Debate by Mohamed A. El-Erian of PIMCO
In today’s polarized environment in Washington, Republicans and Democrats are unwilling to compromise “too early.” Such political paralysis on key economic issues is increasingly unsettling for the U.S. private sector, and for other countries that rely on a strong U.S. at the core of the global economy.
2011-06-09 Understanding Recent Market Movements by Mohamed A. El-Erian of PIMCO
Despite massive fiscal and monetary stimulus, the U.S. economy has frustratingly failed to gain proper traction.
The U.S. economy faces structural impairments in housing, credit, public finances, and the functioning of the labor market.
The situation in Europe is another factor undermining market sentiment.
Structural problems require structural solutions that are adopted within a clearly communicated overall vision.
2011-06-03 U.S. Must Move Beyond Financial Band-Aids by Mohamed A. El-Erian of PIMCO
Structural problems require structural solutions to improve the labour market, housing, credit and medium-term fiscal sustainability. Some analysts will encourage investors to look through these “temporary and reversible” factors. We should not. The U.S. lost its edge in educating, training and retooling its labour force. This slippage has been extremely costly.
2011-06-01 The Danger of Emerging Market Inflation by Mohamed A. El-Erian of PIMCO
If left unchecked, high and accelerating inflation in emerging markets will have growing adverse economic, social and political effects. In addition to undermining overall growth and resource allocation, emerging market inflation imposes a very heavy burden on the poor and erodes political unity. Emerging economies will tap multiple policy brakes as they seek to counter mounting inflationary pressures. And they will continue to grow, but not enough to pull up decisively the sluggish advanced countries.
2011-05-16 Secular Outlook: Navigating the Multi-Speed World by Mohamed A. El-Erian of PIMCO
It is a world that heals slowly and unevenly, and remains structurally impaired. Balance sheets, both across and within economies, are still out of equilibrium. We expect advanced economies will face sluggish growth and persistently high unemployment over the secular horizon. Emerging economies will achieve higher growth but face recurrent inflationary concerns. We do not expect policymakers to boldly address structural problems. By targeting negative real interest rates, they will pursue financial repression that undermines the “real return” contract that savers expect.
2011-05-16 Strauss-Kahn Allegations Are Consequential for the Global Economy by Mohamed A. El-Erian of PIMCO
Should Strauss-Kahn be forced to step down, this would catch the IMF with a selection process for the top position that is still overly dominated by politics.
The allegations facing Strauss-Kahn are serious and will take time to be investigated properly. In the meantime, they have caught Europe still without a sustainable solution to the debt crisis in its periphery.
2011-03-30 A special visit to Tokyo by Mohamed A. El-Erian of PIMCO
Japan is recovering from the horrible calamities, but doing so in the midst of enormous challenges and high uncertainty.
2011-03-24 Understanding Japan’s Disasters by Mohamed A. El-Erian of PIMCO
Japan’s reconstruction challenge will likely be more difficult than after the Kobe earthquake. Negative wealth and income effects this time around will be more severe, and the recovery process will probably take longer and be more complex. Japan's disasters will add to the global economy’s headwinds.
2011-03-21 World Near Tipping Point? by Mohamed A. El-Erian of PIMCO
Much of the potency of policy responses has been used up in the successful efforts since 2008 to avoid global depression. The longer the persistence of supply disruptions, the greater the risk of core inflation increasing. Questions about the end of quantitative easing in the U.S. pose a challenge for policymakers.
2011-03-14 Japan Will Recover by Mohamed A. El-Erian of PIMCO
Japan has the ability to recover economically from these horrible natural disasters. Japan’s immediate focus is on the enormous human suffering, and rightly so. Attention also turns towards the extent of the damage to the economy and its reconstruction and rehabilitation plans. The good health of Japan is central to a robust global economy that generates lots of jobs and enhances productivity.
2011-03-01 Differentiated Change in the Middle East and North Africa by Mohamed A. El-Erian of PIMCO
For two months, developments in the Middle East and North Africa (MENA) have taken most by surprise. What started as an protest in Tunisia has developed into a regional phenomenon that has toppled regimes and is threatening others. Indeed, every day seems to bring an historical event that is changing the region and impacting the global economy. Governments across the globe have spent weeks playing catch up in the midst of unthinkable developments in MENA. They have organized emergency evacuations of citizens and constantly responded to realities on the ground, including the violence in Libya.
2011-02-22 The Global Economic Impact of this Weekend's Developments by Mohamed A. El-Erian of PIMCO
In the short run, regional developments will be stagflationary for the global economy. In the next few days, markets will react to the changed outlook for the region and the global economy. Over time, market apprehension is likely to give way as the impact of greater long-term stability in a key part of the world is felt.
2011-02-19 Viewing Chairman Bernanke’s Remarks Through the Lens of Emerging Economies by Mohamed A. El-Erian of PIMCO
Bernanke's comments will raise eyebrows among policymakers in emerging economies. His remarks highlight persistent differences in analysis that complicate policy discussions. International cooperation will not materialize unless advanced and emerging economies converge on a common analysis of the key issues. My hope is that the G-20 meeting will take an important step in this regard, and do so by recognizing that there is more than one perspective to today’s global challenges. I fear, however, that this may not materialize as yet.
2011-02-03 Spain Is Not Greece and Need Not Be Ireland by Mohamed A. El-Erian of PIMCO
Spain’s success is of acute relevance to the rest of the eurozone. Unlike Greece, Spain does not have a direct public finance crisis. Spain is where Ireland was a couple of years ago, but is clearly keen to avoid Ireland’s experience. To avoid a bad outcome in Spain (and the rest of the eurozone), additional, significant and highly visible progress needs to be made within the next few weeks.
2011-01-26 Nice Speech, But Now Obama Must Act by Mohamed A. El-Erian of PIMCO
The president left no doubt that tackling unemployment was a priority. Success on this would also facilitate the medium-term budget reform that he is targeting. Mr. Obama must make clear jobs creation can no longer depend simply on stimulus, federal government hiring, and the hope that previous drivers (such as construction) will return.
2011-01-17 Europe Is Running Fast to Stand Still by Mohamed A. El-Erian of PIMCO
The sequencing of Europe’s debt crisis is depressingly similar – the plot stays the same, with a slightly different cast depending on the country in the spotlight. Yet, judging by the run-up to the meeting of European Union finance ministers in Brussels on Monday, European officials seem intent on repeating it over and over again.
2010-12-16 Germany in a Lose-Lose Situation by Mohamed A. El-Erian of PIMCO
The problem is that Germany's current approach – centered on dealing with liquidity problems now and solvency centered later – is not working.
A liquidity approach that delays the day of reckoning may be good regional politics, but it's bad economics. It does not restore sustainable growth to the periphery, and it exposes the core to contamination. Rather than simply doubling up on a faltering liquidity approach, the time has come for Germany to lead a more holistic solution focused on addressing the periphery’s debt overhang and competitiveness problems.
2010-11-29 Ireland Rescue Is Not a Game Changer by Mohamed A. El-Erian of PIMCO
Ireland's new liquidity package does little to deal with its debt overhang, or to reduce the embedded cost of its debt. Instead it aims to introduce stability into market conditions. It took time for Europe to recognize the severity of the peripheral debt crisis. Now it is also recognizing that liquidity support (while necessary) may not be enough.
2010-11-12 Irish Crisis Demands New EU Response by Mohamed A. El-Erian of PIMCO
Advanced economies are not wired to operate at elevated levels of sovereign risk. The longer these spreads persist, the greater the decline in investment activity and employment. If things are left as they are the risk of further social unrest will rise, while tax revenues will collapse at a time when budgets are already under enormous strain. The policy responses of eurozone governments were supposed to buy a few years of calm, but ended up by delivering only a few months. A more effective and credible approach is now needed.
2010-11-03 We've Voted. What's Next For the Economy? by Mohamed A. El-Erian of PIMCO
With the two chambers of Congress split between Democrats and Republicans, the conventional wisdom likely to be repeated over the next few weeks is that political gridlock is good for the economy. While often true, that is not the case today. Democrats and Republicans must meet in the middle to implement policies to deal with debt overhangs and structural rigidities.
2010-10-13 The Fed Feels Compelled to Experiment by Mohamed A. El-Erian of PIMCO
Judging from the minutes of the September 21 Federal Open Market Committee meeting, it is virtually a foregone conclusion now that the Federal Reserve will announce on November 3 that it is re-engaging in 'unconventional policies.' As a body, the FOMC recognizes that the benefits of quantitative easing come with potential costs and risks, including unintended consequences. Despite this tricky and uncertain balance, it feels compelled to act.
2010-10-08 Stalled Post-crisis Reforms Must Be Restarted by Mohamed A. El-Erian of PIMCO
In the early part of this crisis, swift coordinated global policy action saw a painful economic collapse replaced by employment gains and greater financial stability. However, the marked failure to continue coordinated action reflects two critical weaknesses that now must be taken seriously: an insufficient appreciation of the mix of post-crisis forces; and a growing void at the center of the international system. For the IMF this means acting on long-standing governance and representation problems – and doing so by going well beyond what is being currently contemplated.
2010-10-05 Beyond Brinkmanship: A Better Economic Path for the U.S. and China by Mohamed A. El-Erian of PIMCO
It is in virtually no country's interest - including that of the United States - for China's economic development to derail. China is the world's strongest growth engine, its largest creditor and its biggest trade partner. Rather lecturing China on its exchange rate, the United States should be doing more to push its European allies to allow a larger Chinese voice in multilateral forums. Beijing, in turn, should think carefully about how it can help the United States and the global economy to bridge the hole of balance-sheet repair.
2010-09-20 An Interesting Week Ahead by Mohamed A. El-Erian of PIMCO
The failure to reduce risk spreads in peripheral European countries means that the public sector bailout is not working. The list of industrial countries wishing to depreciate their currencies is not matched by a list of emerging economies happy to let their currencies appreciate significantly. As a result, foreign exchange tensions are mounting, and the price of gold has been driven to a new record level. This week will shed light on whether policymakers can do anything to deal with these two issues.
2010-09-08 Judging Obama, Geithner and Goolsbee by Mohamed A. El-Erian of PIMCO
The Obama Administration's announcement Wednesday of its new economic policy initiative will be closely watched by markets and will likely impact equity and bond valuations around the world. A disappointing performance today would be met with even greater market skepticism, higher 'self-insurance' by households and companies and further disappointment among America's friends and allies.
2010-08-27 Why Another Fiscal Stimulus Won't Do by Mohamed A. El-Erian of PIMCO
The main debate in Washington today is whether or not to do more of the same: another fiscal stimulus and another round of quantitative easing by the Federal Reserve. This conflicts with evidence that a broader and more holistic response is needed. Policymakers must address key structural issues, including the drivers of growth and employment creation; the high risk of skill erosion and lost labor productivity; financial deleveraging in the private sector; debt overhangs; the uncertain regulatory environment; and the unacceptably high risks facing the most vulnerable segments of society.
2010-08-13 Deciphering Today's Violent Market Moves by Mohamed A. El-Erian of PIMCO
Tuesday's Federal Open Market Committee statement confirmed what the high frequency partial data have been signaling for a few weeks now: that the U.S. economic recovery has lost momentum. Expectations have evolved in an interesting manner - from the more familiar bell curve (a dominant mean and thin tails) to a much flatter distribution with fatter tails. In such a universe of expectations, short-term news can have a disproportionate impact on market valuations. When you are potentially on the road to deflation, a small change in probability will have an amplified impact on markets.
2010-08-09 El-Erian on Why the Payrolls Report Matters by Mohamed A. El-Erian of PIMCO
The employment picture constitutes yet another headwind - and a significant one - to the already-faltering U.S. recovery. More Americans are struggling to earn enough to maintain their standard of living. The time has come for Washington to realize that the existing policy mix is not appropriate for the task at hand.
2010-07-15 Stress Test Is No Shortcut to Stability by Mohamed A. El-Erian of PIMCO
Will the testing of 91 European banks by regulators stabilize the region's finances? After all, a similar approach in the U.S. last year may have helped normalize financial markets there. The U.S. stress test, however, applied to institutions that were the main cause of the financial instabilities, and the government had budgetary room to support the sector. Europe's concern about banks is a derived concern, reflecting worries about sovereign debt in some countries and the overall economic situation; and there are greater limits today on budgetary resources.
2010-07-09 The Real Tragedy of Persistent Unemployment by Mohamed A. El-Erian of PIMCO
The US faces a low growth/high unemployment trap, which would have four consequences: erosion of skills in the labor force, pressure on social safety nets, dampened spending by those who are employed, and less risk-taking by companies. El-Erian suggests several policy initiatives to combat unemployment.
2010-06-28 Mohammed El-Erian on a Disappointing G-20 Compromise by Mohamed A. El-Erian of PIMCO
Mohammed El-Erian digests the 'unusually long communiqué from the G-20 Summit in Toronto.' El-Erian expresses his concerns about the future of a post–global financial crisis world that is in desperate need of better cross-border policy coordination and harmonization.
2010-06-25 Beyond the Growth Vs. Austerity Debate by Mohamed A. El-Erian of PIMCO
This weekend’s G-20 meeting will likely fuel, not resolve, the heated debate triggered by a combination of exploding debt and deficits in industrial countries, and the recognition that many now face a future of muted growth and high unemployment. In one corner stand the 'growth now' camp, arguing that expansion is a prerequisite to service their debt sustainably. Against them stand the 'austerity now' camp, who want budget cuts to lower risk premiums and stave off disruptive debt restructurings. The two sides are both right, and wrong.
2010-06-23 Sovereign Wealth Funds in the New Normal by Mohamed A. El-Erian of PIMCO
Sovereign wealth funds are generally well-equipped to navigate financial markets after the crisis of 2008 and amid current fiscal strains in Europe. Yet they too face potential challenges, as the global economic recovery is unlikely to follow a straight and simple path. How these funds confront these challenges will speak directly to their effectiveness in investing national wealth to benefit current and future generations, as well as their contributions to stabilizing a fluid global economy.
2010-06-07 On the Need to Listen Carefully to What the G-20 is Saying by Mohamed A. El-Erian of PIMCO
The recent G-20 communique is a further confirmation that structural and balance sheet realities are imposing themselves on the global economy. Compared to what the world has known for the last 40 years, this results in a highly unusual configuration of growth, debt and deficits. It also raises legitimate questions about the prospects for self-sustaining private sector recoveries in industrial countries. Finally, it loudly illustrates the limitations of cyclical policy responses and international coordination, as well as associated problems with unintended consequences and collateral damage.
2010-05-25 Return of the Nervous Weekend by Mohamed A. El-Erian of PIMCO
Having over-romanticized the cyclical bounce, some investors are now scrambling to reposition their overextended portfolios now that structural problems are undeniable. The disruption in financial markets is not a garden-variety market fluctuation. Instead, it’s an overdue recognition that the global economy faces an uncertain future that involves slower growth and greater government regulation. Structural problems require structural solutions. The question is whether policymakers in Europe will acknowledge this, or remain hostage to hope for an immaculate recovery.
2010-05-17 Difficult Choices Still Facing Europe by Mohamed A. El-Erian of PIMCO
The beneficial impact of last weekend’s $1 trillion 'shock and awe' intervention by Europe to save Greece and safeguard the euro is fading - even more quickly than officials had feared. This is the result of two main factors. First, having analyzed the news out of Europe in depth, markets recognize that the liquidity-based approach cannot sustainably address what is at heart a solvency problem. Second, markets are concerned that short-term stability is being pursued at the cost of long-term viability.
2010-05-13 Driving Without a Spare by Mohamed A. El-Erian of PIMCO
Mohamed El-Erian recounts the results of last week's PIMCO Secular Forum on the three- to five-year outlook for the global economy and the markets. Participants concluded that we are heading toward a world that is re-regulated, de-levered, and growing less rapidly in the industrial countries. It will be a world in which concerns about the dark side of globalization temper enthusiasm for its net benefits, and in which politics matter a lot for markets and the economy. The drama playing out in Europe these days is a vivid illustration of this general secular characterization.
2010-05-07 Understanding the Greek Aftershocks by Mohamed A. El-Erian of PIMCO
The Greek crisis has already morphed into a regional shock. It now stands on the verge of morphing into a more global phenomenon. Some countries will benefit, mainly on account of capital flows coming out of the euro area. The majority will not. And even those that do benefit should remain vigilant and responsive. Like most other countries in the world, they will also end up suffering from the consequences of lower international demand and renewed disruptions to the global banking system.
2010-05-04 Many More Chapters Left in the Greece Drama by Mohamed A. El-Erian of PIMCO
Sunday's loan announcements from the European Union and the International Monetary Fund will not mark the end of the Greek debt crisis, nor will they constitute a much-needed turning point that can be sustained for many months. Instead, they will part of the multi-stage process that still has a few rounds left. If design and implementation issues emerge, future rounds may involve a reopening of negotiations and a recasting of the approach in some areas.
2010-04-29 Greek Crisis Endangers Private Sector by Mohamed A. El-Erian of PIMCO
The Greek debt crisis has morphed into something that is potentially more sinister for Europe and the global economy. What started out as a public finance issue is quickly turning into a banking problem too; and what started out as a Greek issue has become a full-blown crisis for Europe. Absent some remarkable change in the next few days, things will get even more complex for the public sector. It may have no choice but to combine its own exceptional financing efforts with talks on a controversial approach that will be familiar to emerging market observers - private sector involvement.
2010-04-08 Why the Greek Rescue Isn't Going According to Plan by Mohamed A. El-Erian of PIMCO
The triumphant announcement from Greece, the European Union and the International Monetary Fund a couple of weeks ago has not calmed markets, nor has it lowered Greek borrowing costs. Buoyed by a cyclical recovery, markets around the world have yet to recognize the complexity of this situation. When they do, it will also become apparent that Greece is part of a wider, and historically unfamiliar phenomenon – that of a simultaneous and large disruption to the balance sheets of many industrial countries.
2010-03-11 How to Handle the Sovereign Debt Explosion by Mohamed A. El-Erian of PIMCO
The simultaneous deterioration of public finances in many advanced economies represents a significant regime shift with consequential and long-lasting effects. In 2008 and 2009, governments had to step in to counter the simultaneous implosion of housing, finance and consumption, and now the world must deal with the consequences of how they did this. Governments will not be able to rely on growth or private sector holdings to overcome their debts. Policymakers will need to make difficult decisions about higher taxes and lower spending.
