Opinion

Mohamed El-Erian

Americans can ill-afford this debt ceiling debacle

Mohamed El-Erian
Jul 25, 2011 14:45 UTC

By Mohamed A. El-Erian
The opinions expressed are his own.

Friday’s stunning and very public quarrel between the president and the Speaker of the House of Representatives was the catalyst for a weekend of frantic negotiations on how to increase America’s debt ceiling, maintain the country’s sacred AAA rating, and avoid a near-term default. Meanwhile, administration officials and members of Congress took to the airwaves on Sunday trying, but largely failing, to strike the balance between statesmanship and another round of the Washington blame game.

It was hoped that all this would serve as a prelude to a political compromise announced just before the opening of Asian markets. This did not materialize. But while another self-imposed deadline has been missed, it is likely that the nation’s leadership will stumble into a short-term compromise over the next few days — one that raises the debt ceiling and avoids a debt default but, importantly, leaves the AAA rating extremely vulnerable and does little to lift the damaging clouds hanging over the US economy.

It will come down to the wire; and when the stopgap compromise is reached, many in Washington will declare victory and, in the process, claim credit for averting a national disaster. Yet the resolution will likely be temporary, and the damage will be real and long-lasting — both of which render an already worrisome situation even more difficult going forward. Indeed, by illustrating so vividly to the whole world what is ailing America, the weekend’s political theatrics should make us all worry even more about the world’s largest economy.

First, consider the context. America’s already-fragile economic psyche and its global standing have taken a material hit. Forget about “animal spirits” for now. Instead, worry even more about an economy that is already having tremendous difficulty sustaining an acceptable growth momentum, and that already suffers from an unemployment crisis that is increasingly protracted in nature. Analysts will now scramble to again revise down their projections for growth, and up those for unemployment.

Second, remember the content. The debt and deficit issues that are at the root of the debt ceiling drama are, unfortunately, a small part of a much larger set of structural impediments to employment, investment and wealth creation. The housing sector is still languishing, credit intermediation is uneven, infrastructure investment is lagging, job skill mismatches are increasing, and income and wealth inequalities are worsening.

Is Europe’s debt crisis a “Lehman Moment” for America?

Mohamed El-Erian
Jul 5, 2011 14:37 UTC

By Mohamed A. El-Erian
The opinions expressed are his own.

With its high unemployment and stretched balance sheets, today’s US economy can ill-afford a negative shock from abroad. Yet, this is what it is experiencing. And it explains why markets go through bouts of nervousness about the debt crisis in Europe, and why American policymakers are worried about a foreign financial situation that is getting worse by the day.

Europe’s debt problem is indeed a headwind for what remains a disappointing US economic recovery. It dampens America’s export prospects, can raise the cost of borrowing for some American companies and diminishes an already low enthusiasm among banks to lend to households and small companies.

Having said that, it is unlikely, though not inconceivable, that Europe’s debt crisis would constitute a “Lehman Moment” — a situation that totally paralyzes American economic activity, puts the country on the verge of a depression and triggers yet another round of extreme crisis management measures.

A live Q&A with Mohamed El-Erian

Jul 1, 2011 16:40 UTC

On Thursday, July 7 at 9am ET, CEO of PIMCO Mohamed El-Erian will be taking your questions live and answering them here. Please join us and leave your comments and questions for him below.

El-Erian’s previous columns have talked about the European debt crisis, how to make Egypt’s revolution successful, the IMF, Dominique Strauss-Kahn and Christine Lagarde and what he learned from his recent visit to Tokyo, Japan.

You can also post your questions on the Reuters Facebook page or send them over Twitter using the hashtag #askmohamed or @kherrup.

“Made in Egypt, by Egypt, for Egypt”

Mohamed El-Erian
Jun 29, 2011 20:39 UTC

It is a great pleasure to be with you today. I would like to express my deep appreciation to the Board of Trustees of the American University in Cairo … and extend my immense congratulations to AUC’s graduating class of 2011.

At this time, and more than ever, AUC and other centers of learning in Egypt occupy a very important position in a country that is in the midst of historic transformations. In today’s Egypt, universities are — and should be — much more than centers of learning. They are critical facilitators of beneficial change for millions of Egyptians; for current and for future generations; and for the well-being of a country, a region, and a global system.

People look to our centers of learning for education and thought leadership. They look to them for guidance in navigating complex economic, institutional, political, and social transformations. And they look for them to develop the future leaders of society at every level.

Europe struggles with bad choices

Mohamed El-Erian
Jun 6, 2011 14:50 UTC

By Mohamed El-Erian
The opinions expressed are his own.

Very few of us like to be confronted with unpleasant choices. If we are, we will tend to delay a decision. And if forced to make one, we will likely opt for the choice that, in our minds at least, seems less disruptive upfront — even if we know it is likely to involve discomfort down the road.

This simple human analogy is critical in understanding why Europe’s increasingly ugly debt crisis refuses to go away. It sheds light on the choices made up to now; and it speaks to why an increasingly incoherent policy response will likely end up in tears for Greece and potentially other European economies and institutions.

Let us wind the clock back to just over a year ago when Europe first bailed out Greece, a country no longer able to pay its bills. Together with two monetary institutions — the European Central Bank and the International Monetary Fund — European politicians faced unpleasant choices and had to respond. But rather than decisively addressing the problem, they essentially opted to kick the can down the road.

from The Great Debate:

How Lagarde should be appointed at the IMF

Mohamed El-Erian
May 20, 2011 15:06 UTC

By Mohamed El-Erian
The opinions expressed are his own.

Eager to retain a historical but outmoded entitlement, European politicians seem to be coalescing around Christine Lagarde to replace Dominique Strauss-Kahn as Managing Director of the IMF. Lagarde has the qualifications to successfully lead a multilateral institution that is central to the well being of the global economy. Her ability to do so, however, may critically depend on how she is appointed.

Lagarde has considerable skills and expertise; she has gained important experience in both the private and public sectors; and, judging from her stint as France’s Minister of Finance, she has navigated well the corridors of political power at the national and European levels.

Lagarde would be the first woman to lead a Bretton Woods institution. Such an overdue appointment would send an important message to an IMF demoralized by disturbing allegations of sexual assault by Strauss-Kahn. It would also come at a time when delicate questions are being raised as to whether the institution has historically been tolerant of inappropriate behavior.

from The Great Debate:

Strauss-Kahn allegations are consequential for the global economy

Mohamed El-Erian
May 16, 2011 15:49 UTC

By Mohamed A. El-Erian
The opinions expressed are his own.

This weekend's detention of the IMF's chief on allegations of sexual assault has implications that go well beyond the impact on Dominique Strauss-Kahn's (or, as he is commonly known, DSK) international prestige. They could also impact the IMF, France, market uncertainty and the well-being of the global economy.

We must wait to make a full assessment until we know the outcome of ongoing police investigations into allegations that, according to his lawyer, DSK intends to “contest vigorously.” Having said that, some commentators are already taking the view that the IMF could lose its managing director, and that France could lose a leading candidate for next year's presidential elections.

Should he be forced to step down, DSK would be the third successive head of the IMF to leave suddenly. Once again, this would catch the institution with a selection process for the top position that is still overly dominated by politics, horse-trading between Europe and the US and other outmoded characteristics.

from The Great Debate:

Five ways to correct the Greek debt crisis

Mohamed El-Erian
May 3, 2011 19:10 UTC

By Mohamed El-Erian
This piece is the English version of the one that appeared in Handelsblatt. The opinions expressed are his own.

Not a day goes by without a flood of comments on Greece and its debt problems. They seem to come from everywhere. Some are later denied while others are left to stand, accompanied by a continuous string of worrisome data. In the process, even greater disorder is gaining hold of the country’s debt markets, with credit spreads exploding in an ever more alarming fashion.

There is a risk that all this could serve to confuse rather than illuminate the key issues that should be on the radar screen of many, whether they are policymakers or normal citizens. I can think of five such issues.

from Newsmaker:

A special visit to Tokyo

Mohamed El-Erian
Mar 30, 2011 11:41 UTC

By Mohamed A. El-Erian
The opinions expressed are his own.

The check in for my flight from London to Tokyo confirmed that this was not a normal business trip. With a sympathetic smile, I was given a leaflet informing me that my non-stop journey would, in fact, be making a stop-in Korea, for a crew change as the airline company was minimizing the time spent by its staff on the ground in Japan. I was also informed that only three other people had checked in for the business class cabin; and that the crew could well outnumber the passengers there.

The arrival at Narita airport was equally unusual. A whole set of typically busy passport control booths was shut. The other was processing very few passengers, and virtually no foreigners. I went through quickly and was met by a taxi driver who immediately apologized for the lack of heating in the airport terminal. "We are saving electricity," he explained.

As unusual as all this was, none of it prepared me for what I heard from colleagues in our Tokyo office. Stories of courage were mixed with sadness within a range of personal and family ordeals -- all experienced during, and in the aftermath of the terrible earthquake, devastating tsunami and nuclear crisis.

from The Great Debate:

An Egyptian song for all

Mohamed El-Erian
Mar 8, 2011 17:00 UTC

By Mohamed A. El-Erian
El-Erian is the CEO of PIMCO. He spent part of his childhood in Egypt where his father was a professor of international law at Cairo University and then served as an Egyptian diplomat and was elected to the International Court of Justice in 1978. The opinions expressed are his own.

For centuries, songs have provided populist narratives of historical movements. And, every once in a while, a song comes along that also succeeds in capturing forcefully the raw emotions of the moment. This is the case today with "Sout el Horeya," or the "Voice of Freedom," sung by Hany Adel and Amir Eid.

Coming out of Egypt, this song skillfully encapsulates the strong drivers behind the ongoing transformations impacting the Middle East and North Africa. It is a "must hear" for all those trying to understand previously-unthinkable developments in the region, including western governments whose sophisticated intelligence services have been caught flat-footed and are now playing rapid catch up.

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