Tags: Pimco | Fed | Congress | Economy

Pimco’s El-Erian: Fed Has Done All it Can – Congress Must Now Help Economy

Wednesday, 02 May 2012 01:20 PM

The Federal Reserve has done all it can to prop up the economy and it's time for Congress to muster the political will and push through policies that will hasten recovery, says Mohamed El-Erian, CEO of Pimco, manager of the world's largest bond fund.

The Federal Reserve has slashed interest rates and rolled out two rounds of extraordinary stimulus policies known as quantitative easing, asset purchases from banks designed to flood the economy with liquidity to encourage investment and hiring.

Talk of a third round, dubbed QE3, rises and falls each week, with disappointing indicators spurring talk it's coming and stronger indicators spurring talk it's not going to happen, roiling markets in the process.

"What should happen is that the Fed should be less activist and other government entities should step up to their responsibilities," El-Erian says, referring to congressional inability to narrow deficits and pay down debts, CNNMoney reports.

Editor's Note: Startling Proof of the End of America’s Middle Class. Details in the Video

In 2011, Congress waited until the last minute to raise the country's debt ceiling to avoid default, engaging in partisan bickering to the very end.

At the end of this year, the Bush tax cuts are set to expire while automatic spending cuts are set to kick in, which would suck hundreds of billions of dollars out of the economy, an event dubbed by markets as a fiscal cliff.

"By the end of this year and into next year, a whole host of expenditure cuts and tax increases are due to come in unless decisions are taken," El-Erian says.

If Congress stalls, expect the Fed to roll out QE3 "not because it's the right thing to do but because the cost of not doing it is higher."

Some Fed officials insist a QE3 won't help the economy and add they can do nothing to deal with the fiscal cliff.

"No amount of monetary accommodation will make up for this problem of not dealing with this fiscal cliff,” says Federal Reserve Bank of Dallas President Richard Fisher, according to Bloomberg

"Monetary policy alone cannot solve problems without proper fiscal policy," Fisher adds.

"If we let it go too far as the Greeks obviously did, we’ll end up with riots in the streets in the United States."

Editor's Note: Startling Proof of the End of America’s Middle Class. Details in the Video

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Wednesday, 02 May 2012 01:20 PM
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