El-Erian's Remarks On Winning The Depressionary War And Losing The Post-Crisis Peace
Pimco's Mohamed El-Erian continues to attempt to push for the bond over the equity case, most recently with his just released lecture remarks for the Per Jacobsson Foundation. In it the New Normal economist reconciles, once again for all those who missed it the first few hundred times, just what the New Normal means, and warns about a short-sighted, cyclical response by the international community, being extremely vocal in his critique of the post-crisis response, which is nothing less than a continuation of the emergency measures that prevented what some believe would have been an all out collapse had Goldman and AIG been allowed to fail: "Two years ago, policymakers from around the world gathered here in
Washington, DC and recognized that the world was on the verge of an
economic meltdown. Together they initiated an impressive set of
measures, showing a commonality of purpose, narratives, interests, and
actions. The private sector also responded as companies and households
took steps to navigate the sudden stop in global financial flows. The
war against a global depression was won. History books will report with admiration on the crisis management
phase. Unfortunately, they will be less generous when it comes to the
post-crisis period. Having won the war, industrial country societies are in the process
of losing the peace. Indeed, absent some important mid-course
corrections, industrial countries confront the prospects of low growth;
high unemployment that is increasingly structural in nature; welfare
losses, including a growing number of citizens falling through the large
gaps created by overly stretched safety nets; and a rising risk of
protectionism.This dichotomy between winning the war and losing the peace is an
important one. It points to shortfalls in diagnosis, inappropriate
operational constraints, and the fact that structural and balance sheets
imbalances that were years in the making cannot be overcome
From El-Erian's conclusion:
It also reflects an excessive intellectual reliance on shortcuts, including short-term mean reversion. Indeed, an important part of the disappointing post crisis outcomes is due to the high degree of active inertia that dominates industrial countries, including difficulties in shifting from a cyclical mindset to one that also acknowledges issues pertaining to national and global paradigm shifts and debt overhangs.
It is increasingly urgent for industrial societies to move beyond cyclical responses by also taking a longer, more secular view. Multilateral institutions can and should play a more important role in helping to navigate this critical transition. But to translate the possible into the probable, multilateral institutions must step up their efforts to deal with long-standing, well known problems—and do so by going well beyond the currently measured pace.
In closing, we should not forget the insight of the philosopher Lawrence Peter Berra. Mr. Berra, a legendary baseball player and manager—and better known by his nickname “Yogi Berra”—once said “The future ain’t what it used to be.” Let us all hope that the global economy responds to this reality with the required degree of courage, imagination, purpose and steadfastness that it displayed in dealing with the global financial crisis.
Hardly anything revolutionary here, suffice to say that Pimco's agenda to get QE at any and all costs is more than obvious, and continues on Friday's remarks by Bill Gross which have made it all too obvious for all to see, just what the Fed will do on November 3. As always, we will confirm whether the Newport Beach bond manager is once again buying Mortgage and USTs on margin, thus removing any doubt as to what the Fed may have leaked, and will do.
Full video can be seen below, while El-Erian's full speech is linked here.