A dismal August jobs report should serve as an alarm bell for Congress and the White House to make much-needed fiscal reforms to steer the nation away from a national crisis, said Mohamed El-Erian, CEO of Pimco, manager of the world's largest bond fund.

The U.S. economy created a net 96,000 jobs in August, well below market forecasts for about 125,000.

The number depicts an economy that is unable to absorb the millions of Americans who are out of work or are entering the labor force for the first time.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

Unless those jobless workers gain employment soon, more and more risk becoming structurally unemployed, meaning they've been out of a job so long they become harder to hire, which damages the competitiveness of the U.S. economy, El-Erian said.

Furthermore, wages aren't rising, while more and more Americans have quit looking for work in general.

Since the downturn, the Federal Reserve has cut interest rates and has taken other measures to encourage investing and hiring, but fiscal reforms such as cutting debts and narrowing deficits are needed to streamline the economy.

"Indeed, each day that passes without a meaningful policy response means that this national crisis becomes much harder to solve," El-Erian wrote in a Huffington Post blog.

Only Congress and the White House can take the necessary steps to improve the economy but have made little progress determining how much more or less the government should tax and spend.

"With both houses so deeply divided and polarized, the best we should expect out of D.C. is policy activism just out of the Federal Reserve. Unfortunately this is insufficient," wrote El-Erian, chief executive officer and co-chief investment officer at Pacific Investment Management Co., also known as Pimco.

"As hard as Ben Bernanke and his Fed colleagues try — and they have been trying very hard, taking monetary policy ever deeper into unfamiliar/experimental territory — the institution does not have the proper tools to deal with our unemployment crisis."

Monetary policy tools on top of interest rate cuts have including selling short-term Treasury holdings and stocking up on longer-term instruments to outright buying of bonds held by banks with freshly printed money, a monetary policy tool known as quantitative easing.

Meanwhile, more and more Americans remain out of work and risk becoming permanently unemployable.

"If Congress is not careful, these trends will further increase an already-material risk that, for the first time in a very long time, our children's generation may be worse off than that of their parents."

A recent poll reflects that sentiment is growing.

Only 14 percent of Americans believe children these days will enjoy a better life than their parents did, an all-time low, a Rasmussen Reports poll found in August.

The survey added that 65 percent of American adults do not expect today’s children to be better off than their parents, while 21 percent weren't sure what to expect.

In a similar poll in July, 16 percent said they expected children to enjoy a better life than their parents did.

Meanwhile, more and more Americans are growing increasingly skeptical of the American dream in general.

"Americans are also less optimistic about the possibility of working hard and getting ahead. Just 28 percent now say it is still possible for anyone in the United States to work hard and get rich, down from 35 percent last month and the lowest finding since June 2011," Rasmussen found.

"Fifty-seven percent (57 percent) disagree, but another 14 percent are not sure."

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible