El-Erian: These Are The Three Things The Government Needs To Be Doing Right Now

PIMCO’s Mohamed El-Erian spoke to CNBC this morning about investor reaction to QE2, Ireland, and U.S. government policy.

  • 0:25 The market took their belief in QE2 too far for two months, and is now pulling back. We’re not seeing enough from policy makers to promote growth.
  • 1:30 It is a race between the ECB-EU-IMF-Ireland and people nervous about their deposits in Irish banks right now. Right now, it looks like the bailout side is winning.
  • 2:00 The problem is, will this Irish solution be a liquidity solution or a solvency solution. If it is the former, we’ll be talking about this again shortly.
  • 2:30 Portugal will be next if Europe “kicks the can down the road” again. Then we’ll see Spain.
  • 3:00 There will be burden sharing. Bond holders should take a haircut. There is something wrong with a system that transfers all the costs to citizens. The key issue is making this restructuring orderly.
  • 4:00 If you believe we’re going to muddle through (2% growth, high unemployment) the debt market is fairly priced. If you believe we’re going to grow faster, then it is overpriced.
  • 5:25 We need to be supporting demand, through monetary and fiscal policy. We need to promote growth in the long-term, which means investment. The government needs to protect the the most vulnerable during this global, as well as domestic, realignment.  Right now, we’re only doing one.

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