EL-ERIAN: Low Interest Rates Are No Good Without Policy Actions

Photo: Bloomberg TV

PIMCO CEO Mohamed El-Erian is calling it the GGIRC: the great global interest rate convergence.In a new piece for CNBC.com, El-Erian describes GGIRC as a world “whereby interest rates steadily converge to zero in many countries around the world.”

In theory, low rates should be good for the economy as they¬† “make it cheaper to fund investment and consumption; and they make it easier for companies, governments and individuals to carry a given stock of already-accumulated debt,” writes El-Erian.

“In practice, however, the situation is much more complicated and not so benign,” said El-Erian. “Simply put, lower borrowing costs are not enough to convince companies to expand given the list of domestic, regional and global uncertainties; indeed, many of these companies are far from credit rationed as they sit on huge cash balances.”

He continues to be concerned about the risk of “collateral damage and unintended consequences.”

But he thinks all of the bad stuff can be avoided if we can get passed “highly polarised and dysfunctional politics” and get a globally “coordinated set of measures to promote growth, allocate financial losses, match healthy balance sheet with those that are challenged and reforming, and improve the functioning of the labour and housing markets.”

Read the whole piece at CNBC.com.

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