Traditional policies, not stimuli, will bail out US: Pimco
Published on Thu, May 28, 2009 at 09:36 | Source : CNBC-TV18
Updated at Thu, May 28, 2009 at 19:26
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Traditional policies, not stimuli, will bail out US: Pimco
Mohamed El-Erian, CEO and Co-CIO, Pimco, said the major challenge for the US would be to find sustainable public finance. The US markets were factoring in enormous issuances of money by the US Federal Reserve. He added, "US needs to stop putting in stimulus into the economy and needs to go back to traditional macro policy."
Q: Interesting you say that because so far a large part of the equity rally is been predicated on the fact that there has been so much stimulus, that the Fed has been throwing so much money in the system but you are saying that that has its price- what would you have them do at this point then? A: The first thing you do is stop buying, you stop putting in the stimulus. The second is you go back to traditional macro policies that tend to work well when the situation is normalized. Third thing is start selling what you own. So there is a sequence. But the markets are not clear as to, is that the sequence the authorities are going to take or not? There are a lot of question marks out there and that is why it is an exciting and challenging time for investors, because the market is trying to figure it out and if you can predict it, you are ahead of the market.
Q: There is a view that global markets are beginning to break away from each other- that there are distinctly different performances across the world, would you agree with that being a possibility or do you think they will still move in one linear direction? A: There are couple of things there, one is we are going to see convergence. So the US will continue to be a super power, but will not be the only super power. We are seeing China recover quicker this time around than the industrial countries. The second issue which is more worrisome is that the American model, or the Anglo-Saxon model that was based on deregulation, liberalization, on finance being a pre-imminent sector in global economy that model is being questioned. And it is not clear what the substitute is. So there is a risk that you get a vacuum at the core of the system and you don't have anything to replace it. And that is why it's really critical that the US bounce back quickly and in a transparent and predictable manner.
