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Crony Capitalist Of The Month: Mohamed El-Erian
This article originally appeared in the Daily Capitalist.
I am crossing Pimco off my list as a credible institution. If Bill Gross and Mohamed el-Erian are running that show, and if you have any money invested there, I recommend pulling out, fast.
The fact is they have very little understanding of basic economics and continue to call for policies that are ruinous to our fiscal and monetary health. They are run of the mill neo-Classical/neo-Keynesian economists who happen to be very good traders. I'll add something else as well: they are just lucky. As Nassim Nicholas Taleb points out in his writings, statistically institutions like Pimco can and will exist at the upper end of the investment advisory spectrum, and you can't tell if they are lucky or smart. I'm saying Gross and El-Erian have been lucky.
Bill Gross has already starred in the Daily Capitalist as Crony Capitalist of the Month. No need to repeat his errors. It is Mr. El-Erian I wish to discuss.
Perhaps the fact that Mr. El-Erian publishes commentary in the Huffington Post, that combine of liberal dogma, faith-based economics, and sleaze, is somewhat of an indicator of the quality of his analysis. Yes, I know HuffPo is respectable now that AOL blew $315 million to acquire them. But ... they are still sleazy.
What got me vexed were some of Mr. El-Erian's recent articles in HuffPo.
His style that is that of the Senior Statesman Who Pontificates. That is, there are a lot of nice words but little real content or meaning. It sounds like stuff that comes out of committees. Here is a typical example of his five point solution for America:
First, start with a specific destination for the economy defined by transparent metrics for growth, jobs, inflation, financial soundness and, importantly, the key social indicators. I suspect that most can agree on a formulation that is both desirable and feasible.
Second, translate these objectives into clear priorities for lifting the major structural impediments to our economy. Again, I suspect that there would be broad-based accord on key sectors where simultaneous and coordinated actions are needed. (My list would include housing, the labor market, banks, infrastructure and public finances, as well as immediate steps to unleash productive energies.) ...
Blah blah, blah. I could go on but it all sounds the same. It's the kind of stuff you hear from retired CEOs who go on the lecture circuit. If you wish you can read on your own his five point program to save us.
Basically he is saying that we need to focus on national goals, that our politicians need to show leadership, that we need to unite behind a program that everyone can agree to, and then we need to execute the plan. And he says we have little time to waste or ... we will suffer from years of economic stagnation. Wow! Pretty (un)impressive stuff. I am sure it appeals to the HuffPo audience.
It actually took a little digging to finally figure out what he actually advocates. Here it is in one sentence:
To get out of such an impasse, central bank crisis management remains critical; and it will probably involve further balance sheet operations and monetization of debt.
At last: quantitative easing ("further balance sheet operations") and inflation ("monetization of debt") is the solution.
This is Krugmanesque in its naïveté and ignorance of monetary theory. One might ask him why it hasn't worked after pumping $2 trillion of fiat money into the economy. One might ask why ZIRP hasn't worked either. Or why it hasn't worked in Japan – ever.
When you analyze what Mr. El-Erian is advocating it is the further devaluation of the dollar, more price inflation thereby destroying valuable capital and robbing the elderly of their savings, distorting the business cycle which will lead to further economic stagnation and high permanent unemployment, and increasing federal debt as a percentage of the economy thereby creating debt slaves of future generations who, like us, will obtain no benefit from what we spent the money on.
It gets much worse though. Here is the key paragraph:
In this specific area, the world should learn from one aspect of China's economic policy approach. If it does, it would do three things differently. First, it would get buy-in from broad segments of society for medium-term policy objectives (in this case, high growth, greater employment creation and financial soundness). Second, it would link the objectives to specific structural reforms that are implemented simultaneously and - equally importantly - owned, closely-followed and coordinated at the highest political level. Thirdly, it would build institutional flexibility that facilitates timely mid-course corrections if needed.
While I am a harsh critic of Mr. El-Erian, I am doing my best to fairly represent his ideas from his actual statements without taking them out of context. Thus, when I give you the above quote, I believe it is not just a throw-away line.
Here is the following paragraph:
You would be surprised how effective such a re-framing could be in overcoming the political squabbles that undermine the specification and implementation of individual measures. It also allows for much more effective global co-ordination.
This is a shocking statement from Mr. El-Erian. It is indicative of his world view. That is, an effective government is one where the government makes policy, imposes it on its people, and carries out such policy based on government-determined economic goals. It appears to me he is advocating a command economy.
Why do I conclude that?
If we can agree that WWII was a period of a "buy-in" of government economic policy objectives, then I don't see any other period in recent American history where there was a "buy-in from broad segments of society" of any economic policy. In fact constant dissent and in-fighting is the way most democracies function.
The way China achieves a "buy-in from broad segments of society" is to dictate policy to its cadres who make sure that their "medium term policy objectives" (5-year plans) are carried out. "Re-framing" means that if you don't "buy-in" then there are penalties.
I have to conclude one of three alternatives from his statement. One, he is naive. Two, he is ignorant. Three, he means it. He is a sophisticated, well educated, worldly gentleman. Thus I don't think he is naive or ignorant. I am sure he would deny that he is anti-democratic and that his reference to China was not meant to be exemplary, but rather illustrative of what happens when those objectives are attained.
Perhaps it has occurred to him that such "national" objectives can never be attained in a democratic, capitalistic society. At least not in the top-down manner he advocates. Common goals here have been mainly achieved from ground-up voluntary cooperation of millions of people through the marketplace. Politics has not been a great forum for achieving successful policy, as he points out. By trying to limit the power of the federal government, the founders of our country understood very well the pitfalls of central political authority. The fact we have so much discord is a direct result of the growing power of the federal government to intervene in our lives. By taking away individual choice we have to use politics to fight for what was originally ours.
Mr. El-Erian is a throwback from earlier times when the chimera of central planning and "national goals" were seen as laudable goals. We dismissed those ideas because they don't work. Mr. El-Erian was born much too late.
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Hmm, whom to believe. What a dilemma!
On one side you have PIMCO and their "statist" "communist" "neo keynesian" who promotes coordinated action on the economy through state management of national goals.
On the other side we have reductionist name-calling Econophile, whose track record includes jewels like the "Something's happening" series that seemed to show a "recovery".
I'm sorry Econophile, but you're just too ideologic to be taken seriously. Drop the name calling, drop the reductionisms, and try to explain the mechanics of the real causes of today's system based on evidence, rather than catchphrases like "keynesian" or "liberal" (that rant about Huffpo being respectable because it was bought by big corpo is just plain idiocy)
I agree to disagree
BUT PIMCO is about 90% more right than the rest of the world
Just my humble opinion
and BTW you can see that "the central planning" has already started at Jackson Hole by saying nothing, but doing everything necesary to stabilize the downward spiral..
Pimco was talking about shorting treasuries in May. I believe their logic was that interest rates would increase at the end of QE2 as bonafide purchasers would be demanding higher rates on US government issues.
If Pimco did indeed short treasuries (we could be talking about huge losses in the last 3 weeks) then El Erian is just pumping his positions. He and Gross want to see policies that insure high rates - e.g. QE3, Dollar devaluation, inflation, high commoditiy prices, etc. Makes Cramer seem like an honest guy.
Remember Rockefeller's words when wondering where El Arian gets his ideas: 1973.
After a trip to China, David Rockefeller praised Mao Tse-tung who had slaughtered over 40 million people. His report, "From a China Traveler," highlights the goals...:
"One is impressed immediately by the sense of national harmony.... Whatever the price of the Chinese Revolution it has obviously succeeded... in fostering high morale and community purpose. General social and economic progress is no less impressive....The enormous social advances of China have benefited greatly form the singleness of ideology and purpose.... The social experiment in China under Chairman Mao's leadership is one of the most important and successful in history." New York Times, 8-10-1973.
All hail the hive-mind!
What took you so long? What's amazing is that Bill Gross understands who, or what is behind it all, but still chooses to sell his soul. When is enough money, enough? I would think at $10 million you'd have to look around and say WTF, I'm done slavin' away, I'm going to do what I want to do, when I want to do it. Or do you also grant servitude when you sell your soul? I'd like to see that contract. I'll bet it must be signed in blood. Bet it's a hot one.
It took you this long to figure this out?
Sorry to break this to you, but Santa Claus really doesn't exist, either.
I am Chumbawamba.
you've got it wrong, for several reasons. the first is his repeated use of the term "structural". the reason there is no economic growth has to do with these "structural" problems. the political answer has been one measure ideology, and one measure engineering, or monetary solutions. everyone is ignoring the real problems, the loss of jobs, and the broken banking system.
if you plan to outlaw monetization of debt outright, then you advocate the ideological solution.
and while i don't like the comparisons to China, i am not sure anyone wants no economic plan, unless you're an Ayn Rand disciple.
this statement is important because the metrics currently in use are not trusted by anyone, including the recent downgrade of debt by the ratings agencies (so what?)
which metrics are reliable, which ones can be made reliable, and they must be reliable if we are going to form any kind of policy. how in the hell can Bernanke talk about inflation targets, when the CPI measure is calculated by dime store magicians?
now mr el arian can not jawbone much against the Fed and the policy makers, but he can vote with his feet, and PIMCO has not been very supportive of bonds lately, like the guy who makes corn flakes saying, no i'm buying wheat instead. he is in the bond business. the record speaks for itself. he is not in the business of running for office, where candidates seldom come up with detailed economic plans, and if they do, they toss the plan aside the moment they are elected.
if there was a broad approach, not ideological, not technical, we would be on the way to having a system which does what it is supposed to do.
nuff sed
Pimco are by far not the worst in analysing the US eco. Between to reflate and default, there is not much choice left for this country. All stimulus ends up in China, the OPEC and rest of Asia. So a trade war would be an other issue. But who in the money management business would dare to pronounce this idea in the open public.
Wait, someone still considered PIMCO credible?
I realize that El-Arian "speaks so well," but that only goes so far. Especially when the suck-ups at CNBS have him on.
Econophile, your critique of El-Erian is accurate. His piece is a puff piece. He says that we have to agree on goals. To be sure, we do. An agreement on goals, however, is not a first step. It is the very LAST STEP of a process called “politics”.
Politics is a process that takes place within a framework of rules. Always.
The trouble we face now is that over the years we have ditched our traditional system of rules, otherwise known as the Constitution.
In a political world with no rules, of necessity a fight erupts over who gets to define them. (This makes sense. In the playing of a football game, if you were to gain the right to define how many yards it takes to make a first down, you would never lose.)
A fight over the rules is nasty. It is decided by power. Power means violence. In other words, to speak directly and plainly, the rules of politics are decided by war, actual or implicit.
We have had a war over the rules in this country. It has taken place in muted form, but has been very real, and has resulted in a new, informal constitution. There are many rules in this new constitution. Their force arises precisely because nobody talks about them. One rule in particular stands out. It is this: high levels of the military bureaucracy and of the police apparatus in Washington have the right to assassinate a president of the United States, should the man who is president present a threat to their power. (This rule came out of the coup d’etat of Nov. 22, 1963).
So, yes, El-Erian’s piece is fluff. But, Econophile, so is yours. We are getting in this country what the people who make the rules want to get. They get the rules they want because they are in a position to kill (or put in jail, or strip resources) people who oppose them. They know that their authority rests on violence.
You write: “By taking away individual choice we have to use politics to fight for what was originally ours.” Oh, come on. This sounds like a kid on the playground who is whining about something not being fair To not be fair is the point of the exercise.
If you want change, forget about contractarian fairy tales. Start talking about coalitions. We don’t need “personal choice,” we need to work together to oppose swat teams, “homeland security,” the 15,000 people working for the FBI who serve as infiltrators and who gin up “terrorists” attacks, the SPLC, and so on and on and on. The day that we decide that we have had enough -- the day that we decide that we are all Syrians, the day that we becom willing to do something in concert and start taking the hits -- is the day that real change begins to happen.
duplicate (this system needs a little tweeking, I think)
elarian is bad because he writes a lot, says nothing at all, and it just looks like something to make himself sopund smart. he offers general platitudes, gives no real financial advice, and what he says is so general it always appliees nad he can say they did what I SAID IF IT WORKS, AND DIDN'T IF IT DOES
These days, whenever I hear some pundit say “we need to” it immediately translates in my mind into “I’m not doing shit, but, you need to do this so that me and my friends can profit from your actions.”
Yeah, I'm always wary of being included in a solution without my permission.
No joke, especially when the proposer of the solution is part of the problem, and you're one of the problem's many victims.
Well said, Rocky!
While I am not a big fan at all of el-erian Not because of his economic beliefs (of which this pundeit is an idealoge (I agree with him a lot, but too over the top.
El Erian comes off as so self righteous. He thinks that the World hangs on his every word.
Abbey Joseph Kohen is the same way.
Like when they speak they are giving us such a GIFT of their extensive knowledge.
They both get on my nerves. As far as El Erian I do not think he is lucky. He is an insider and gets insider information before he places his bets. I am sure that now there is no QE he cannot front run the FED on the Bonds and get a free lunch when they buy them back for an immediate profit.
QUOTATION OF THE DAY "We didn't need the capital, but it doesn't hurt to have more in a volatile time." CHARLES O. HOLLIDAY JR., the chairman of Bank of America, on Warren Buffett's investment of $5 billion in the beleaguered financial institution. What a lying sack of sh_t. Even NY Times recognizes it.
Can't say I remember the "Mahatma" part, but wasn't "El Erian" the horse that came 2nd in The Preakness a few years back - maybe about 2003? (I seem to recall having a wager on him - unfortunately just to win)
Didnt realise that he went on - or, I should say, trotted-on - to be a big shot with PimP Co - probably just nods (up or down) in the direction he thinks the LIBOR spread is headed. Just goes to show....
love the empire
.
pontificate over war, taxes, liberty, jobs, and alien subsidized global stratageys
Crony capitalism? What is that?
Funny, funny.
First enquiry: one must explain how the US has not practised crony capitalism since its inception.
Second enquiry: one must tell if the freedom of practising crony capitalism is not fiercely asked by US citizens.
Once again, US citizens eternal nature shows. When they do, it is all fine. When the others do, it is double wrong. Once because when the others do, it is all wrong. Twice, because only US citizens should be allowed in such behaviours.
http://trololololololololololo.com/
Another dude to hang from the nearest lamp post.
With government bonds shoved in every orifice?
Any plan that hinges on cooperation between Republicans and Democrats from the start....
"El-Erian" was much better as the lead singer for Queen.
I literally laughed out loud at that one!
Well said! TY, Econophile
"that combine of liberal dogma, faith-based economics, and sleaze,..." brilliant
el-erian is another fascist totalitarian asshole.....people should rise up to defeat him....he is evil....
He just wants interest rates to not rise too fast and bonds not to default. He does run a bond fund!
As it turns out .. via a 401K, I actually have some money in TRF (thankfully not a career worth .. but enought not to dismiss).
In a few months I'll be able to yank it keeping matching.
PIMPCO has been saying the right things lately, or at least Bill has ... however Mohammad El-Erian seems a plastic sell out to the system, and for every + of Bill, Mohammads issuances counteract it.
I've pondered what to do .. stay with Total Return Fund in the sake of diversity ... or ditch them.
The more EL-Erian speaks, the more I'm inclined to ditch PIMPO.
Diversity seems prudent on the surface, but the more one digs into the U.S. stock and bond market the more unnerving it becomes. Too much fraud.
We live in a time when you can't trust paper.
Political garble-dee-gook is what HUFF is about, so I'm not surprised at the tone. We saw what just happened to S&P over the downgrade? Investigations, justice and SEC coming down on them.
Step back and recall how critical Bill Gross is and has been of US fiscal policy. Given the smack-down of S&P its possible that PIMCO was given the boot-on-neck treatment and Mohammed is towing the line to keep from getting clobbered ala S&P.
As of 2010, it was the world's 12th-largest financial services group and 23rd-largest company according to a composite measure by Forbes magazine.[3]
Its Allianz Global Investors division ranks as a top-five global active investment manager, having €1,443 billion of assets under management (AuM), of which €1,131 billion are third-party assets (as of 2010-09-30), with specialized asset managers such as PIMCO (Bond fund), RCM (Equity fund), Degi (Real estate fund), etc.
their European bank owners. Surprised?
it is not smart to dismiss the rantings of either of the pimpco principles since it is clear they are the market makers of choice for .gov in the bond market. el arian may be testing the water for the " monetary policy by the few for the greater good" approach. it really isn't for general consumption as the general population is not really a serious consideration except as wage/debt slaves. it is to rally the "smarter and richer than you" crowd to the plan's common sense, them being the common people.
qe n+1 makes perfect sense to the people at the top of the food chain and will therefore be showered upon the people labeled as new monetary theory or old keynesian krap. railing against it only feels good but can do no good to prevent it.
disclosure. talking my book. i am in debt way past flood stage and expecting .gov/fed to bail me out with loads of fiat pumps.
Hmmm, satire at its best.
The four hour meeting I sat in with El-Erian, he wasn't pulling punches. Must be only reserved for the sheeple.
El-Erian looks like Tennessee Ernie Ford.
Tim auctions 16 bonds and what do we get
another day older and deeper in debt
St. Warren scammed sheeple he's a fat old ho
Ole Pimpco's just the second worst whore
Bravo Econophile! Thank you for exposing this sleaze bag.
RE: "...Perhaps it has occurred to him that such "national" objectives can never be attained in a democratic, capitalistic society. ...Mr. El-Erian is a throwback from earlier times when the chimera of central planning and "national goals" were seen as laudable goals. We dismissed those ideas because they don't work. "
1) The US is NOT a capitalist society. It is a fascist kleptocracy overseeing an apathetic, self-absorbed mass of me-first individualists.
2) Central planning of the type implied by El-Erian worked very well in post-war Japan, Taiwan, S. Korea, and Singapore due to Confucian cultural norms that place the good of society before the desires of individuals.
3) It is the cultural differences that make such a command economy unworkable in the US.
Why bother? US citizens can not conciliate their own history and reality.
They want a fabled past that should explain these days' troubles. Something has changed along the path so they say...
Quite funnily enough, the best part is that they do not give the benefit of the doubt to this guy who is neither naive nor ignorant. This guy knows.
Of course, when one applies this approach to US citizens, one is wrong. US citizens can only be either naive, ignorant, dumb etc...
Just state one obvious fact: US citizens want wars and the opportunities associated with wars and woooops, the rationalization attempts are cascading.
Such is the US world order.
Ouch! - The truth hurts! Even if it is insightful.
Friggin grandslam Jeff!!!...
"This is Krugmanesque in its naïveté and ignorance of monetary theory. One might ask him why it hasn't worked after pumping $2 trillion of fiat money into the economy. One might ask why ZIRP hasn't worked either. Or why it hasn't worked in Japan – ever.
When you analyze what Mr. El-Erian is advocating it is the further devaluation of the dollar, more price inflation thereby destroying valuable capital and robbing the elderly of their savings, distorting the business cycle which will lead to further economic stagnation and high permanent unemployment, and increasing federal debt as a percentage of the economy thereby creating debt slaves of future generations who, like us, will obtain no benefit from what we spent the money on."
At some point emotion will leave the realm of the nations fiscal budget and private enterprise. Until then, we will have to deal with the pandering cronys of both.
But I do see light at the end of this Keynesian tunnel ;-)
But, but, but, it has worked. The sheeple paid 100 million to Loyd Blankfein. If Stupid Americans did not bail out Godman Shafts he would not have received his bonus. End of Story.
El-Erian is just projecting his inner range upon the rest of us becuase he does look like the cross between a donkey and Barney Frank!
That's the look you get after Barney's franked you.
lol, made me spit coffee......
Voting with Bullets will soon be En-Vogue!
Congratulations Wall Street!! You have brought the fury of the Masses Upon Yourselves!
http://www.youtube.com/watch?v=Fsubt_gdeBA
Uploaded by RussiaToday on Aug 25, 2011
This time Max Keiser and co-host, Stacy Herbert, discuss the Fainting Bankers of Wall Street and the myotonic markets they inspire. In the second half of the show Max talks to Chris Martenson about the insolvency of the banking system and about Dr. Bernanke's misdiagnosis of the cause of the financial crisis.
Wall Street Aristocracy Got $1.2 Trillion in Fed’s Secret Loans
http://www.bloomberg.com/news/2011-08-21/wall-street-aristocracy-got-1-2-trillion-in-fed-s-secret-loans.html
PLUS!!!
SEC Covering Up Wall Street Crimes?
http://www.rollingstone.com/politics/news/is-the-sec-covering-up-wall-street-crimes-20110817