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Pimco’s El-Erian Says U.S. Economic Setting ‘Terrifying’

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posted on Nov, 22 2011 @ 03:16 PM

Pacific Investment Management Co.’s Chief Executive Officer Mohamed A. El-Erian said U.S. economic conditions are “terrifying” as the nation struggles to recover from recession.

The odds of the U.S. returning to recession are as high as 50 percent, El-Erian said during an interview on Bloomberg Television’s “In the Loop” with Betty Liu. U.S. economic growth was worse than expected and congressional policy makers are gridlocked over what to do about the economy and the deficit, which risk exacerbating an already weak recovery, he said.

“We have less economic momentum than we thought we had and we have no policy momentum,” said El-Erian, who also serves as co-chief investment officer with Pimco founder Bill Gross at the world’s largest manager of bond funds.

“What’s most terrifying,” he said, “we are having this discussion about the risk of recession at a time when unemployment is already too high, at a time when a quarter of homeowners are underwater on their mortgages, at a time then the fiscal deficit is at 9 percent and at a time when interest rates are at zero.”

The economy in the U.S. expanded less than previously estimated in the third quarter, reflecting a drop in inventories that points to a pickup in growth as 2011 comes to a close.

Structural Issues

Gross domestic product climbed at a 2 percent annual rate from July through September, less than projected and down from a 2.5 percent prior estimate, revised Commerce Department figures showed today in Washington. The median forecast of 81 economists surveyed by Bloomberg News called for no revision.

I like this guy. You know why? It's not because he speaks gloom and doom, though admittedly it makes for interesting news. But because unlike most economists, El-Erian has peripheral vision. He is able to look at, or at least consider, factors and headwinds much more broadly than the immediate domestic issues and data at hand. For example here, he supports his views by way of citing high unemployment before a recession has officially set in, on the back of very low interest rates and high numbers of home owners underwater on their mortgages. I have also watched him in recent times speak about world economc developments more broadly and how these do and can potentially impact on the US economy. He looks beyond local data to build his forecasts and frame his opinions.

This is one chap that people, economists and governments should be listening to. He is often interviewed on Bloomberg and CNBC.
Btw it looks like US growth wasn't quite up to expectations going by the first of two GDP revisions isn't it? 0.5 per cent may not sound like much but when you consider the factors as El-Erian has outlined, and the anemic growth already, that half per cent makes up a big deal on overall economic impacts. That is what? A 20 per cent miss on expectations, from 2.5 to 2.0?

posted on Nov, 22 2011 @ 04:44 PM
Good read and a scary one too.
For anyone doubting what is down the road check out this link of banks that have gone bankrupt in the states.
Please check the year and you will see in 2011 there is a major major increase this year.
This cannot go on much longer I personal opinion here.
S&F to the OP.

Regards, Iwinder

posted on Nov, 22 2011 @ 04:50 PM
And we have the Bank of England saying there is a high risk of a high impact event as in 2008..

The high impact scenarios being bandied around in the UK include a break-up of the euro, a UK government debt default, or a financial institution failing.

Seems to me what is to come is all cut and dried now..

I hate the waiting..

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