Tags: Pimco | El-Erian | Gridlock | Economy | Mohamed

Pimco's El-Erian: Gridlock Isn't Good for Economy

Wednesday, 03 Nov 2010 09:05 AM

Now that the Republicans have taken control of the House of Representatives and made serious inroads in the Senate, it would seem political gridlock between the two major political parties would benefit the economy as it has in the past.

Not this time, says Mohamed El-Erian, co-head of Pimco, the world’s largest bond fund.

“While often true, that is not the case today,” El-Erian writes in the Washington Post.

Political gridlock in the past prevented both parties from pushing through economically unproductive actions, thus keeping government farther away from the economy and allowing the private sector to make better use of its capital.

“This view is most applicable to a private sector that is in good shape — businesses and households with robust balance sheets, positive cash flow and access to credit,” El-Erian says.

While many companies and households are sitting on lots of cash, they are not behaving in ways that would create jobs, which is what the U.S. really needs to get its economy out of the doldrums.

Blame Washington, El-Erian says.

“Many of these companies and households explain the divergence between their will and their wallet by pointing to regulatory and tax uncertainty, the absence of a clear macroeconomic vision, and the notion that the Obama administration is ‘anti-business.’”

“The economy needs political courage that transcends expediency in favor of long-term solutions on issues including housing reform, medium-term budget rules, pro-growth tax reforms, investments in physical and technological infrastructure, job retraining, greater support for education and scientific research, and better nets to protect the most vulnerable segments of society.”

Voter unrest propelled the Republicans to victory Tuesday night.

.“People want to see results,” says Rep. Eric Cantor of Virginia, according to the Associated Press.

“They want to see the government go on a diet just like they have.”

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Now that the Republicans have taken control of the House of Representatives and made serious inroads in the Senate, it would seem political gridlock between the two major political parties would benefit the economy as it has in the past. Not this time, says Mohamed...
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2010-05-03
Wednesday, 03 Nov 2010 09:05 AM
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