El-Erian: If We Keep Abusing The Dollar, The World Will Look Elsewhere For Its Reserve Currency

Mohamed El-Erian spoke to CNBC this morning about the U.S. economy. He thinks the market already knows QE 2 won’t work for the real economy, and is worried about the currency war.

  • 1:20 Policy makers did really well in winning the war against global depression, but we’re having a problem securing the peace. We are struggling with growth, unemployment, public spending, and balance sheet problems.
  • 2:40 The FOMC minutes Tuesday will inform the public how far the Fed has lowered its GDP projections. The minutes should also make more clear some of the specifics being talked about regarding quantitative easing 2.
  • 3:50 People know that QE 2 will not be fully effective. It will not impact the real economy. The Fed is the only game in town and is being forced to do all the heavy lifting.
  • 4:40 El-Erian is worried about the currency war. Lots of people want to depreciate, few want to appreciate, so what ends up happening is everyone depreciates against commodities.
  • 5:25 The IMF representation problems still remain, and they prefer to kick the can on most issues until the G20.
  • 6:15 You can’t beat up a global reserve currency forever, like the dollar. It will make people seek other currencies, and the system will fragment.
  • 7:25 The bond market is pricing in a buyer with a printing press, so it is not a leading indicator.

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