EL-ERIAN: ‘The road we’re on is coming to an end’
Ben Moshinsky
BusinessInsider.com
Mar. 15, 2015
Mohamed El-Erian, the former PIMCO CEO and current chief economic advisor to Allianz, has an eye-catching prediction.
Within the next three years, the global economy will hit a “T-junction.”
Policymakers will either watch helplessly as the world sinks into a mire of financial volatility and political collapse or they’ll find a way to unlock the piles of corporate cash sitting on the sidelines, reinvigorating growth.
At the moment, it’s a coin flip.
“The road we’re on is coming to an end,” El-Erian told reporters in London on Tuesday.
The road he’s referring to is the persistent low growth, low inflation, low interest rate path that developed economies have travelled down since the 2008 financial crisis.
Central banks pumped money into the system to push up asset prices, betting rich people would look at their net wealth statements, feel richer and spend more, stimulating corporate investment and a return to growth.
That hasn’t happened.
While the policies worked temporarily, and prices of houses, stocks, bonds and even fine art boomed, money didn’t trickle down the chain into the real economy, worsening inequality and creating an unsolvable debt overhang.
“In the US, the vast majority of new wealth went to the rich, but the rich spent less of it,” El-Erian said.
Meanwhile, the tools central banks used to keep the financial world alive after the collapse of Lehman Brothers are getting less and less effective.
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