Traditional policies, not stimuli, will bail out US: Pimco

ALSO READ See what other FIIs are saying about the markets See what other experts are saying about markets See what Udayan Mukherjee is saying about the markets Nifty BSE | NSE 10/02/12 Are Mutual Funds betting on Nifty?

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."
Here is a verbatim transcript of the exclusive interview with Mohamed El-Erian on CNBC-TV18. Also watch the accompanying video.

Q: Day before there was a big rally led by the consumer confidence numbers; do you think such equity rallies spurred on by the green shoots which keep cropping up are sustainable in nature?

A: Is it sustainable? Are we in a holding period or we going to see this improvement continue? And last week's announcement was really a warning shot for us, across the bow of the US saying that at some point US will have to come of this emergency policy response where the public balance sheet is being put to use to substitute for the private balance sheet. At some point, it will have to come out of this emergency situation and get to sustainable public finances and that is a major challenge for policy makers.

Q: Do you sense that there is some caution being priced into the market and what is it that it has got into its mind by way of worries right now?
A: The market is starting to price in the enormous amount of issuance and the fact that the Treasury will have to lengthen in its average maturity when it comes to its debt. Secondly the rating news last week was worrisome and thirdly and importantly, people are starting to worry about potential inflation. They are starting to worry that the emergency liquidity is not going to be drained on a timely basis because of political issues. What the market is saying is that this is a very delicate time and it is very important that it be navigated well by policy makers and by investors.
Continued on next page ...