Tags: El-Erian | Pimco | U.S. economy | unemployment rates

El-Erian: U.S. 'Used All of the Wrong Bullets' in Battle to Improve the Economy

Friday, 11 Nov 2011 02:17 PM

The U.S. economy is hitting 'stall speed,' where like an airplane, it's moving too slowly to generate enough lift to keep it aloft and ends up stalling and dropping, says Mohamed El-Erian, CEO of Pimco, the world's largest bond fund.

Leaders have embraced the wrong policies to deliver what the economy really needs, which is growth. "We used all of the wrong bullets," El-Erian tells CNBC.

"We tried to throw money at the problem. The issue is not money, the issue is that what we have are structural impediments and structural challenges need structural solutions."

The U.S. economy is facing five potholes on its path to more sustained growth: Housing, unemployment, public finances, infrastructure and weak credit markets.

"Until we get movement on those five things, we're at stall speed," El-Erian says.

Stall speed is particularly scary when talking about the economy as large as that of the U.S.

"We can talk about the probability of recession when unemployment is already too high, when the financial deficit is 9 percent of (gross domestic product), when interest rates are already at zero percent and when a quarter of the homeowners are already underwater on their mortgages. That is a terrifying concept. That is why everything must be done to avoid a slowdown in growth."

Officially, the U.S. remains on the road to recovery, although growth has been lukewarm at best while unemployment rates have remained high at 9.0 percent, way above pre-recession levels and showing no signs of making serious improvements.

A Wall Street Journal survey of 52 economists put the odds of the U.S. dipping back into recession at 1-in-4, down from a 1-in-3 chance they predicted just two months ago.

Still, sunny skies don't lie just beyond the horizon.

"While the likelihood of a recession [in the U.S.] has eased of late, the economy is still operating at only a modest pace and remains vulnerable to shocks," says Julia Coronado at BNP Paribas, as quoted in the Wall Street Journal.

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The U.S. economy is hitting 'stall speed,' where like an airplane, it's moving too slowly to generate enough lift to keep it aloft and ends up stalling and dropping, says Mohamed El-Erian, CEO of Pimco, the world's largest bond fund.Leaders have embraced the wrong policies...
El-Erian,Pimco,U.S. economy,unemployment rates
399
2011-17-11
Friday, 11 Nov 2011 02:17 PM
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