Move Over Doctor Doom; Mohamed El-Erian Ascends To The "King Of Skeptics" Throne

Tyler Durden's picture

Earlier we presented a Bloomberg op-ed by an increasingly pessimistic Mohamed El-Erian. For those too lazy to read it, we recommend the following 4 minute interview by Bloomberg's Tom Keene of the Pimco skeptic. In a response to what policy recommendation El-Erian would suggest, the humble ex-Havard endowment head (who sure got out when the getting was good) who prefaces his response by saying he is not smart enough to propose policy (so who is - Tim Geithner?), says America should expect a bumpy journey as the economy resets "There is no silver bullet." Those mid-term elections are looking uglier by the minute.


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Mongo's picture

silver is nice, wouldn't wast'em as bullits.

Anonymous's picture

While at Harvard, El-Erian was giving advice to then Harvard pres Larry Summers, which Summers explicity rejected. Summers not taking that advice cost Harvard billions and billions.

Anonymous's picture

Mohamed overlapped only a short period of time with Larry.
There was very little advice that Mohamed gave Larry. Mohamed totally screwed up the endpwment including doing many things that cost Harvard a great deal of money (think Jeff Larson). He was an absolute disaster and got out before they threw him out.

Anonymous's picture

So, Larry did the best he could given the mess he was handed? His decisions weren't awful... considering? MEE = Bush & Summers = Obama?
We are so screwed.

bugs_'s picture

Another weatherman warning of the coming storm.

PS: Love the swan pic too bad its not black.

NRGTDR's picture

Agreed. Could it be some attempt at overt symbolism to forewarn the observant?

cougar_w's picture

Safe to assume. Semiotics are everywhere these days. The entire end of the world will be sub rosa.

faustian bargain's picture

That picture is awesome. He should have a can of black paint in his hand.

SWRichmond's picture

If the crisis is structural vs cyclical....interesting way to frame the problem.  So many who are alive today and actively participating in these markets have spent their entire adult lives in the Greenspan credit bubble (20+ years), juiced by falling interest rates; they learned behaviour, acquired habits and are burdened with expectations that are no longer appropriate. 

What we have to do is completely change the way we think about money.  Namely, there is no goddamned money.  The regime of falling interest rates is at an end, and that is the reason why this crisis is structural rather than cyclic.  Any cyclic slowdown we had was immediately bubbled away by Greenspan.  Now that interest rates are at zero, we are using QE to render effective rates less than zero.  The things we thought we could afford we never really could afford, but thought we could because of easy money. 

This is the essence of central banking and the welfare/warfare state.  Bubblenomics makes us feel like we can afford war and medicare/medicaid/social security/SSI/extended and emergency unemployment benefits/socialized medicine/corporate welfare/bailouts/what have you.  Now that the regime of steadily falling interest rates is ended, we see that we could never afford any of that crap at all, and we stagger about trying to figure out how to balance a budget that is based on a false assumption.  The fact is, we never had the money in the first place.  There is no goddamned money.  We're broke.  There is no more demand we can pull forward, there is no one to whom we can export our way to happiness, or salvation, or fiscal balance; there is no one who has enough money to lend us to tide us over until the magical productivity fairy shows up.

It's not real.  It never was. 

economessed's picture

Your comments represent one of the finest I have ever read on ZH -- <applause>

Joe Davola's picture

Well there is that (if the answer to my question yesterday is correct) $15 Trillion in 401(k)'s that can be appropriated.  That covers us until the next administration - hopefully.

Anonymous's picture

"Hence, let's print paper and keep this facade going as long as possible."

Ben Bernanke

B9K9's picture

The greatest conspiracy of all is why basic concepts regarding money, credit & economics are not taught in school - at any level. In reality, it should be the sole subject studied during every person's senior year in high school.

The crux of the issue is that our money/credit system requires an expansion in money/credit to cover the costs (principal+interest) of the previous cycle of money/credit expansion.

As it turns out, government is not only a party to this system, it is THE party behind the charade. Without a foil like the Fed, the central government itself would have to take the blame for debasing the People's wealth - a clear violation of the 5th amendment (takings clause).

But if the central government couldn't inflate the money supply (ie have first claims on counterfeit tickets aka FRNs), then its operations would have to be funded purely via taxes & debt. As this would severely crimp the life-styles of all those who feed off the government teat, it soon becomes obvious why the system we have in place today IS in place today.

So, the goal is to force government to live within its means. This, of course, would kill both the warfare & welfare state, which is why there are so many entrenched interests fighting for its survival. Clearly, this opportunity would never exist during a period of economic expansion (ie money/credit inflation), so the government is THE active agent in keeping the hampsters (or debt slaves) running on the spinning wheel.

But, a funny thing happened on the way to the forum, in that in this case with the 2002-2007 housing bubble, it looks like they may have finally over-reached and seriously screwed the pooch.

If so, then this is our golden opportunity. Opportunities like this don't come along any old day; they are multi-generational events. It is important for people to not only recognize the uniqueness of our particular situation, but that this is our window to really make some significant changes as to how things are done.

Mr Lennon Hendrix's picture

agreed.  economics is fatally flawed, but people think it is legit because they believe what they are told, and because they can do calculus, and if they are smart enough to do calculus, they are smart enough to be an economist.  Too bad smart is as common as beauty, and neither mean squat when it comes to REASON and LOGIC.  Also, when the whole system is based on a lie, it does not matter if you can do math tricks.

cougar_w's picture

The core of the problem is thinking that economics is a SCIENCE when actually it is a RELIGION.

KevinB's picture

Not at all true; the problems are: the science is still in relative infancy compared to, say, math, physics, and chemistry; that it is a mix of mathematics and social science; and although it has identified some of the principal (pun intended) problems, it hasn't solved them.

If we take Adam Smith as the father of modern economics, than the science is only slightly older than the US itself. After the first 5,000 years of astronomy, we still believed the sun went around the earth. Give it some time.

The second issue is because it studies the actions of people, the variables in any experiment are difficult to control, and thus it's difficult to draw hard and fast conclusions. The development of theories such as "rational expectations" and "game theory" have helped economists understand how human nature can thwart an economic program, and how people, acting rationally, can choose sub-optimal decisions.An example of the latter is the war on drugs. People realize drugs can cause young people to waste their lives, so they ban drugs. But people still want them, and the black market makes the profits huge. Someone fills the void, and we get billions spent on enforcement, deterioration of civil rights, multiple robberies and murders by junkies and drug gangs warring for turf, a huge prison population (the US incarcerates more people per capita than anyone else), and generations of young men raised without fathers who are ripe for enlistment in gangs. The logical solution to the drug problem, banning them, results in serious sub-optimal results.

But by far the biggest issue that economics has identified, but has yet to solve, is the "principal-agent" problem, and we see this cropping up throughout society. Take Congress - we elect representatives to defend our rights and make the best decisions for us, but they end up getting bought off by vested interests, and by using pork to get re-elected, they make decisions that are often sub-optimal. Take much of the finance industry - we work with brokers and IB's thinking they have our financial health in mind, when they're actually snickering and sending each other e-mails about the crap they're unloading. Take health care - Atul Gawande wrote an excellent in piece in last year's New Yorker (available on line - search for the "Cost Conundrum") that details how the financial incentives in "fee for service" push doctors to overprescribe tests and procedures, rather than concentrate on the much less expensive (but less lucrative) preventative medicine. Take the legal system - torts cannot and should not be eliminated, but the huge contingency fees available to lawyers has resulted in patent trolls, malpractice, and ex post facto judgements on medicines and product designs.  Take education - we expect our teachers to educate our young, but they inevitably become more concerned with wages, hours, and pensions than with learning the latest methods or submitting to merit testing. The principal-agent problem is the biggest weakness in human society, and if anyone ever comes up with a solution, he or she may be the greatest thinker ever.

Mr Lennon Hendrix's picture

The first rule of philosophy is you do not pretend to know the TRUTH.  The second rule of philosophy is YOU DO NOT PRETEND TO KNOW THE TRUTH.  Philosophy is my favorite study, and this is the main reason.  However awesome we humans are, we can never know the ABSOLUTE TRUTH.  Economics can do a lot right.  I believe economics can do JUSTICE.  However, the way that economics is taught now is ONE BIG LIE.  Professors are running the same BS that B.S. Bernanke is running.  "Run the presses to increase exports." 

This game is over now.  They made too many doelarrs.  The old economic paradigm failed.  There will be a new one soon.  The quicker we put it in place, the less we have to wallow in the mire.

I do apprieciate the insight, Kevin.

Anonymous's picture

The problem is too much Keynes and not enough von Mises.

Anonymous's picture

It's difficult enough to get any sort of sex education into public schools. Money education? What a great taboo subject that is in large parts of the country.

Seer's picture

I'll respond to this as I did to Bloomberg's Carolyn Baum's article  (e-mailed her, don't expect to hear back):

I agree with your general assessment.  However... I feel that you (and just about every other status quo commentator) fail to spot the elephant in the living room, the REALLY BIG pyramid scheme as it were- growth!

Perpetual growth on a finite planet is impossible, no matter if it's perpetuated by capitalism or Marxism or what-ism.  Picking out the small bits and calling them pyramid schemes when the very system that they are operating within is itself one big massive pyramid scheme is a bit disingenuous.

Sigh, the lies that we tell ourselves...

Everything has been based on fractional banking (even BEFORE the FED).  This system worked because we had plenty of natural resources with which to exploit for growth purposes.  As is typical, no one ever wanted to spoil the party and ask THE key question: what happens when the party cannot continue?

Anyone contemplating subjecting others to chance should, IMO, be required to watch Dr. Albert Bartlett's presentation Arithmetic, Population and Energy (

Anonymous's picture

Clap clap clap clap clap clap clap clap clap clap clap clap clap clap clap clap clap clap clap clap clap clap clap clap clap clap clap clap

Spot on!

johnny9iron's picture

I agree and there is a big downside to all this. Look at the whole board like SW is doing.

Anonymous's picture

Who doesn't love a snuff film where the director and audience are the unwitting prey?

When the teats dry up, there are gonna be angry bear cubs about.

Anonymous's picture

Nicely done... Very nicely.


T-888's picture

I aplaud you, sir. Well said. Very well said.

phaesed's picture

SWR... I've admired you quite a bit recently. But I have something to point out...

1. 0 interest rates were the goal from the start back in 1913, we've probably been at zero a much longer time than any of us think, except CPI has distorted that. Thank Volcker for that, he "broke the back of inflation" by changing the CPI or a.k.a. proving how stupid the business community really is.

2. What is money? It is merely a fluid which enables exchange, wealth is fleeting, but unfortunately there needs to be a medium for exchange. Colonial Scrip had 0% interest rates, it was merely good for paying taxes. All currency should not have an imbedded rate of interest, that is the glaring flaw so few wish to fix.

3. And you are 100% right, none of it was real but the true shame of it all is that all of this fakeness enabled a few to live comfortably and the rest of us to continue in this sham of a struggle. What I find so funny is that so many want to run back to the fakeness and ignore the reality. I'm glad you're not one of them.


Keep fighting the good fight.

And now that I'm in NOLa... WOW, the poverty here is stunning, yet people here have far more class and civility than in any person I've seen in a $100/dish Scottsdale restuarant I've been in.


Anonymous's picture

+1 Often it is poor people who know how to be happy, what to value. As a member of the middle class, I have no reason not to feel blessed.

Anonymous's picture

You have just explained why the Fed will NEVER stop QE.

Anonymous's picture

You have just explained why the Fed will NEVER stop QE.

Mr Lennon Hendrix's picture

Job cuts are a plus for the markets.  Leaves 'em leaner and meaner.  I think there will be a huge pop up when the revised numbers come out friday. 

He has had brilliant perspective all year, especially his focus on the underlying fundamentals for the long term.  This is all great, except he is ignoring the tens of trillions of doe sitting around, making inflation stronger by the minute.  M2 has increased 20% YoY for 2 years running.  He is right about the fundamentals, except that M2 needs to be a huge consideration as for the market's, and doelarr's, movements nowadays.

Anonymous's picture

"One would be wise not to push too far the conceit that we are smarter than our predecessors"
Rogoff & Reinhart "The Aftermath of Financial Crises"

Don't know if it's in the book, I read the original paper over a year ago. The shame is people as intelligent as El-Erian make money on their own, they don't need to be corrupt politicians... the shame is people like him SHOULD be politicians. Wish we could have heard him and Ron Paul discuss this situation.

From Mardi Gras... I'm out :)

phaesed's picture

fyi... that was me

Greenhead's picture

I have to agree that SWRichmond's comments are on the "money" when it comes to the short version of the problem/situation.  Great post.

gptc's picture

Is it cold in the Bloomberg studio?

10044's picture

They're all tarp and gov intervention lovers. Ignore

Anonymous's picture

Obama and crew are not listening!

The people have to work with each other!

We have to float like a butterfly and sting like a bee...

Wednesday, February 3, 2010 Open House – Now through Sunday!

Anonymous's picture

So, if the Fed and the banks have trillions of worthless paper assets hidden away from the eyes of the public, do we not have a scene where the so-called "money on the sidelines" remains on the sidelines ?

After all, a pile of AAA rated paper was near worthless when someone was persuaded to pay 100 cents on the dollar for it.

Maybe sideline money will become near permanent side line money until interest rates rise.

Rainman's picture

El-Erian puts hammer to nail when he describes the current condition as a structural, not cyclical, economic deformity.

That theory is indeed a fact . 

Meanwhile, the Smarter-than-Anybody Beltway Boyz are all in on a cyclical recession requiring the traditional remedies. They all require firing. Press reset, please.....and soon.  

cougar_w's picture

So long as they can continue to frame the problem as cyclical, they get to do just as they are now.

Which is making them rich.

They have ZERO incentive to redefine the problem.

Whatever is supposed to happen as a result of this failure WILL happen. There is no avoiding it.

That is the ultimate calling of greed; to take what can be taken until there is no more to take, then move on. They will redefine the problem just as soon as they think they can make more money solving another kind of problem. And not a moment before.


Rainman's picture

You're probably right , Cougar.


Gangstas get a 4 year long Hall Pass while the Prinicpal busily sells hope and no change. I think I get it now.

JR's picture

Shifting to a lower gear and adjusting to El-Erian’s “bumpy journey” results in large part from the effects of Globalization. What does Globalization, financed largely by the American producer, mean to the average American? 

It means Goldman Sachs off-shoring his manufacturing base to China et al. and auctioning off America's infrastructure to foreigners; it means Bill Gates replacing Americans with H-1Bs and L-1Bs and L-1As; it means the Federal Reserve devaluing American assets to prop up its global enterprises; that the United States military now serves the international corporations; that Congress is replacing America’s workforce with an open-border workforce and forcing Americans to subsidize all the costs connected to its low-corporate wages; that  the fruits of America’s freedom are being used to subsidize and grow Communist regimes.  It means, according to implications of a mid-2009 Bloomberg report, a  “New Normal of 2% GDP Growth” for America.    

It means that Americans, to service their billionaire plutocracy, have to get “used to unemployment greater than 8 percent”; it means that “potential growth for the U.S. is no longer 3 percent, but is 2 percent or under”; it means “lasting shifts in consumer spending and savings”; it means “a new era of frugality… a secular change in household attitudes”; it means “less return to capital and less-remarkable equity returns”; it means America’s “financial system will be…re-regulated” (by the globalists); it means “growth in the U.S. to be slow…that investors will have to get used to “a 5- to 7-percent return game, not a 15- to 20-percent return game”;  it means the “lasting effect of the recession may be a ‘markedly higher’ natural rate of unemployment.’”  It means savers will be exploited.

It means “consumers are saddled with debt built up during the boom years.” It means that “as a percentage of net worth, household debt -- including mortgages…is at 27%, the highest on record”; and it means that the average house that “grew to 2,521 square feet by 2007” may have to go back to “average size…1,200 square feet”…as less income drives people “to devote less of their incomes to mortgage payments.” It means “the number of U.S. malls [will be] falling by at least a fifth and weak chains succumbing to bankruptcy.” It means all Americans will be “adapting to what will be a new normal.” It means, in short, that the financial insiders smashed  the American Dream in the biggest money swindle known to mankind.

This is your “balance due” statement, America, from the international bankers.

And if you’ve got the time and want to get to know what Globalization really is, take a look at Goldman Sachs, Wikipedia. Then you will know what happened to this great nation, to her resources, to her freedom, and to you… and why.