Tags: El-Erian | central | bank | easing

Pimco’s El-Erian: Continued Central Bank Easing a Recipe for Disaster

By Dan Weil   |   Friday, 12 Oct 2012 12:55 PM

Central bank easing around the globe has allowed financial markets to defy gravity, climbing ever upward in the face of poor economic fundamentals, says Pimco CEO Mohamed El-Erian.

A continuation of the monetary accommodation won’t end well, he writes on CNBC.

Central banks are “all in” when it comes to the easing, as evidenced by this week's round of interest rate cuts in Brazil and Korea, El-Erian says.

Editor's Note: You Deserve to Know What Obama and Bernanke Are Hiding From Americans

But, “there is a limit to how far and how long [financial market] prices can deviate from fundamentals,” he writes.

“This is particularly the case when central banks, acting without the support of other government entities, do not have sufficiently refined tools to secure good and sustainable economic outcomes.”

So central banks aren’t the answer, El-Erian says.

“Either fundamentals will improve or asset prices will fall. Which outcome we eventually see depends in large part on whether other government entities finally step up to their policy responsibilities.”

In the United States, that’s the fiscal cliff of automatic spending cuts and tax hikes that will begin Jan. 1 if Congress and the White House don’t act before then.

Investors need take more heed of the cliff, according to BlackRock analysts.

“Markets appear to underestimate the potential for panic in the run-up to the cliff, the possibility of the nation falling off the edge and the cliff’s impact on economic growth,” they write in a new report obtained by Moneynews.

Editor's Note:
You Deserve to Know What Obama and Bernanke Are Hiding From Americans

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