El-Erian On Whether The World Is Near A Tipping Point

Monday, March 21, 2011
By Paul Martin

by Tyler Durden

It’s another day, which means the probability of a Mohamed El-Erian op-ed is 99%. However, while in the past we may have ridiculed these now almost daily missives which lead many an LP to wonder just which media double of the real El-Erian is managing Pimco’s $1.4 trillion in AUM, this one is actually worth reading as it ties in the recent developments out of Japan, with the firm’s previous insistence that there will be no QE3. Oddly, this party line still has not changed: “Some will undoubtedly call either for a QE3 or for the extension of QE2. Others will warn against this type of “active inertia” in policymaking, noting that the repeated use of such an instrument will likely shift further the balance of outcomes away from “benefits” and towards what Chairman Bernanke, in his Augst 2011 Jackson Hole speech, correctly labeled as “costs and risks”. And remember, these costs and risks – or what at PIMCO we have analysed as collateral damage and unintended consequences – have consequential economic, financial, and political elements that play out both domestically and abroad. Taking all this into account, our inclination is that the hurdle rate for introducing a QE3 will prove to be very high, and rightly so.”

World Near Tipping Point?

•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.
This interview was originally published on blogs.FT.com on March 21, 2011. In this interview, Mohamed El-Erian responds to questions from readers of beyondbrics, an FT.com blog focusing on emerging markets.

How to invest in a crisis?

The Rest…HERE

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