PIMCO's El-Erian On The Inability To Grasp The Seismic Changes Currently Occurring In The Developed World
We have now reached a point when a Senator has to write a well-intentioned letter to the very administration he serves, (whose sworn duty is to preserve the wealth of all of its constituents, not just Goldman Sachs), with a cautionary tale that continued lying to the general population combined with a culture of opacity and persistent fraud, will lead to a disastrous effect to the economy and to the very fabric of American society. Alas, in a society in which those being lied to extract a satisfaction as great, if not greater, from this process, than those doing the actual lying, this is not too surprising. Sticking our collective heads in the sand has traditionally worked miracles for resolving the bulk of this nation's problems. And with the public sector now demonstrating a preferential treatment for the financial space, at the expense of 99% of the remaining population, it has become obvious US citizens can no longer rely on the US government for procuring the truth. Furthermore, with China now a vassal owner of America via its undisputed creditor status, we may soon lose the protection the government is entrusted with affording its citizens in other realms, from enemies certainly domestic (mostly located in south Manhattan), and very possibly foreign. Yet, another voice of caution that has recently emerged, and whose message is critical to all, is that of Pimco's Mohamed El-Erian. The Pimco executive has written another very relevant Op-Ed in the Financial Times, "How to handle the sovereign debt explosion" which does not so much disclose new things, as capture the essence of the groundbreaking transformation that is currently occurring within the entire "developed" world, and more specifically, the denial that the vast majority of "experts" are exhibiting when faced with a previously unseen process of unprecedented significance.
While we recommend reading the entire article, the following section is of particular note:
We should expect (rather than be surprised by)
damaging recognition lags in both the public and private sectors.
Playbooks are not readily available when it comes to new systemic
themes. This leads many to revert to backward-looking analytical
models, the thrust of which is essentially to assume away the relevance
of the new systemic phenomena.
There is a further complication. Timely recognition
is necessary but not sufficient. It must be followed by the correct
response. Here, history suggests that it is not easy for companies and
governments to overcome the tyranny of backward-looking internal
Where does all this leave us? Our sense is that the
importance of the shock to public finances in advanced economies is not
yet sufficiently appreciated and understood. Yet, with time, it will
prove to be highly consequential. The sooner this is recognised, the
greater the probability of being able to stay ahead of the disruptions
rather than be hurt by them.
Precisely the same argument can be brought against Ben Bernanke who in numerous public appearances saw no threat of the bubble bursting in 2005-6, and who, unfathomably, sees no threat of a massive-liquidity bubble explosion currently.
The question we need to ask is shy are we getting this critical insight from a member of the private sector? Why is nobody in government addressing this critical issue and bringing the population's attention to this most material of systemic patterns. Instead we bicker over the end of civilization as we know it should Goldman collapse (it won't: it will simply mean that Goldman's 23,500 staffers will finally have to do an honest day's work for once in their lives if they want to get paid), or how many quadrillion it will cost for the government to nationalize healthcare, and every other industry. Yes- we should be getting this warning from the Federal Reserve, and from those who hope to become the Fed's new members - a position which once upon a time was considered an admirable accomplishment yet now puts you roughly in line with the lepers, hookers, wifebeaters and prison rats in the social hierarchy. We should but we don't - all we get from this government is silence. Instead we get a daily barrage from government bought cheerleaders who preach that all is well, and that precisely the warnings of El-Erian and so many others are to be ignored. And the crowning glory of how far our society has fallen is that the vast majority among us chose to believe these lies, and gladly hand over money to buy another share of Lehman brothers which is in liquidation yet still trades.
And somehow Bernie Madoff is in jail for doing just what the government does to us every single day.