Mohamed El-Erian: US Economic Conditions Are "Terrifying", Recession Chances Are 50%

Tyler Durden's picture

Something tells us that Mohamed El-Erian is aware of the bulls' last bastion of "growth" and "decoupling"- the dip in Initial Claims below 400K. Even so, his appearance on Bloomberg TV was full of sound and fury, and some quite memorable soundbites, starting with this one: "Let me tell ou what I find most terrifying: we’re having this discussion about a risk of recession at a time when unemployment is already too high, at a time when a quarter of homeowners are underwater on their mortgages, at a time when the fiscal deficit is 9%, a time when interest rates are at zero. These are all conditions coming out of a recession, not going into a recession." The Newport Beach dweller is spot on: the situation is getting worse by the day, and the only option left is to do more of what has already failed so many times, and which only makes non-dilutable transitory monetary equivalents that much more attractive (with the mandatory liquidation which may bring them to triple digits first of course).

Transcript from Bloomberg TV

On the U.S. going into a double-dip recession:

"I am worried. We've had two bits of unfavorable news in the last 24 hours. One you reported this morning, which is that we have less economic momentum than we thought we had - 2% growth as opposed to 2.5%.  The second is that yesterday we had no policy momentum. We're worried about the concept of stall speed, that 2% growth may not be enough for an economy that still has to de-lever. We put the chance of a recession at one-third to one half, which is really high given initial conditions."

On policy makers in Washington, D.C.:

"[Policy makers] are totally off the track. It's not a failure to agree on medium-term fiscal reforms, it's also a failure to give air cover for other things that need to be done -- in housing, in the labor markets, in credit. We have no policy momentum. Let me tell you what I find most terrifying: we’re having this discussion about a risk of recession at a time when unemployment is already too high, at a time when a quarter of homeowners are underwater on their mortgages, at a time when the fiscal deficit is 9%, a time when interest rates are at zero."

On what factors could be driving a double-dip recession: 

"This is a fragile economy. It doesn't mean we don't have strength, we certainly do - the corporate sectors are as strong as we have ever seen it in terms of balance sheets. We have incredible entrepreneurial spirit. But we're facing all these structural headwinds, and the big concern is the possibility of us being tipped over by Europe. Things in Europe, as you mentioned a few minutes ago, are getting worse, not better."

On solutions in the U.S.:

"Unlike Europe, the U.S. doesn't face an engineering problem - it faces a political problem. The solution is not an engineering nightmare. You can actually put it on paper and get it done. But it's been a political nightmare. What we'd like to see is the political class to come together and agree on the steps that need to be taken."

"As you have heard us say over and over again, Bill Gross has been saying it, I've been saying it, other PIMCO colleagues have been saying it -- it's structural in nature. We need medium term structural reforms to increase the growth potential and job creation potential of this economy. We can do it. This is different from Europe. Europe has both a political problem and an engineering problem. Our problems are small relative to Europe, but if we wait they will become larger."

On the S&P's statement that US rating is unaffected by the supercommittee:

"That is what S&P is telling us. We have to remember that S&P still has us on negative outlook which means unless things improve over the next three years, there could well be another downgrade. The ratings agencies in general are in a very tough position. We talked about at PIMCO's investment committee yesterday. They've been beaten up a lot, both for what they have done and for mistakes that disrupted the markets for a while. It is hard to be a ratings agency today. You have to read these comments in that context. They are under fire."

On Joseph Stiglitz's comments that austerity measures make the crisis worse:

"I think [Stiglitz] is right, in the sense that the muddled middle, where Europe has been, is no longer sustainable. The crisis that started in the outer periphery, Greece, not only has shifted to the inner periphery and the outer core, Spain and Italy, but it has also impacted France which is the inner core."

"Europe needs to make a choice if it wants to save the euro, and it should save the euro. There's only two choices: one is a full fiscal union, a political decision with a very large bill. The other [choice] is a smaller, less-than-perfect euro zone, which has political implications but has a smaller bill. That is a political decision that Germany must take. The quicker it takes it, the more likely it will be able to save the euro."

On the options that could save Europe:

"There are no easy options. That's why the process is paralyzed. Wherever the policy makers look, they see tremendous costs and tremendous disruptions. The tendency has been to do too little, too late. There is no costless way forward at this point, and that is a problem that all of us have to internalize and understand, that there are no easy solutions."

On Europe being the single biggest threat to the U.S. economy:

"Left to our own, we would muddle along with the risk of stall speed, but one thing we cannot cope with is the major shock from one of the largest economic areas of the world, Europe. Already we're seeing investors stepped back from markets because of the anxiety. The more that happens, the more dysfunctional these markets become."

On whether the Fed should implement QE3:

"I smiled when one of your guests said earlier that the Fed has been the only adult in Washington. That is true. It has been the only institution willing to take steps. As you pointed out, because the Fed has taken these steps, it has taken pressure off of the rest of Washington to do its part…Other agencies haven't stepped up to the plate. It is time for other agencies to step up. The effectiveness of the Fed is declining, unfortunately, day in and day out."

On what the Fed should do:

"Chairman Bernanke has made it clear and he's repeating it three times, saying that when they look at these unconventional policies, they recognize the benefits but there are costs and risks. What we call collateral damage, unintended consequences."

"[Bernanke] recognizes that that equation, that balance, is shifting from potential benefits to costs and risks. Looking forward, if they were to do QE3, they may get some benefits, but I suspect there would also be quite a bit of collateral damage and distortions put into the system that would take us years to overcome."

"[Collateral damage would be] pressure on the currency. What you will see is pressure on the functioning of markets, you will see people stepping back, because more and more non-commercial forces will be determining market outcomes. We will also see questions about the credibility of the Fed and the political autonomy of the Fed."

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Robot Traders Mom's picture

Is the other 50% chance of armageddon?

CPL's picture

And a 50% chance of just being plain old shitty and awful.

Captain Kink's picture

50% chance of Death by starvation, 50% of drowning in worthless FRNs.  Hell, on a long enough timeline...

i root for that fat jersey governor's picture

Gross and El Erian are socialists, period.

TheSilverJournal's picture

El-Erian states as one of his scary things being that "a quarter of homeowners are underwater". The true measure of if a home is underwater, which is if the homeowner needs to bring money to the table at closing or not, brings underwater homes to 50% of all mortgages. A 6% Realtor fee and other selling fees MUST be considered when measuring if a home is underwater.

cossack55's picture

Since TPTB love euphamisms so much, why don't we just refer to underwater houses as "land-based submarines"? Voila', problem solved.

trav7777's picture

well, I still have a job, so it can't be an apocalypse yet, right?  lol

Fuck fiscal restraint; this sucker could go down anyway, so let's get as much dollars migrated to these pockets as possible before the lights go out

TheSilverJournal's picture

The more money that is printed, the more malinvestments are created, and the more pain the collapse will bring. It would be best to stop the malinvestments and stop the cheap money right now so there's not as big of a hole to climb out of. 

Fedophile's picture

Politicians don't solve non-problems, and like Trav said I still have a job, so there's no problem. They'd much rather line their and their criminal accomplices own pockets and expand the defence budget, again lining more pockets. Lets face it, unless Ron Paul gets voted into office or there is another crisis the deficit will continue to be >> 0. 

eureka's picture

Yes. And El Erian is hopelessly behind the curve and speaks in muddled metaphors and says nothing.

"US problems are only political..."

Oh, so US corporations don't pay taxes and don't invest their largest cash holdings, generated by outsourcing and offshoring and bailouts and FED RES $ via their internal and or associated "banks" and from stock and bond issuances i.e. debt and from cutting 25 million US jobs and pushing the remaining employees to work twice as hard... US corporations don't invest all this "hard earned" money in the US - for "political" reasons...?

El Erian, go home to Newport Beach and play with your billionaire friends. You're wasting everyone's time.

And turn off Bloomberg, Tyler.

ElTerco's picture

"US problems are only political..."

I think Eureka knows what the above quote means, but I will spell it out for those who don't; It means that if the United States of America were to raise taxes on the wealthy, the United States of America's fiscal problem would be non-existent.  We have plenty of money to fix our problems, and plenty of selfishness based greed and coruption to block that fix.  The rich have forgotten that they are rich because of the labor of the poor.  They need to grow up and give something back for a few years to get us through the crisis.  Instead, the rich have been demanding lower and lower taxes over the last twenty years because their greed has clouded their vision as to what it takes to run a socially healthy and thus wealthy society.

As far as the supercommitte goes, a dollar in cuts for every dollar in tax increases would be a pretty good deal, and it is the intransigence on part of the part of the people blocking the tax increases that will destroy this country.

vato poco's picture

One of the difficulties inherent to written communication is the difficulty of determining the tone of the writer, and thus the true intent of what he's trying to say. Help a brother out here, Terco...were you being sarcastic? Or are you just incredibly stupid? Thanks so mucho!!

donsluck's picture

Calling someone you disagree with "stupid" does not reflect critial thinking, nor does it further the debate.

ElTerco's picture

Just incredibly stupid!!  Thanks for asking!!!

vato poco's picture

OH, so you were SERIOUS about that whole "Tax your way to prosperity!" bullshit that I mistook for sarcasm. Well, Daddy always said arguing with a fool was a waste of time, so you just have yourself a nice Thanksgiving, Turco. Perhaps you can pray that the poor starving North Koreans and Somalians will raise taxes soon, and thus end their decades of agony. And the Greeks & Italians, as well! Problem solved!

(contented sigh) Taxes. Is there ANYthing they can't do?

boiltherich's picture

AMEN ElTerco, I have been saying this for 30 years.  I have been saying this since I was a rich man under the Raygun regime and had to pay nothing year after year on more than $165k income living in one of the finer spec homes on a brilliant hill overlooking the Sonoma valley.  It was wrong then and even more wrong now.  I know that does not sound like so much now but it really was a lot then.  Investing was easy then, you had a trust fund with a hundred million or so and family money of much more and accountants did it all for you, you could park it in bonds and have a safe return that would only double your money about every 9 years.  No transaction fees, no taxes whatever. 

It is now so much harder for the poor billionaires, they actually have to get off the fucking yacht once in a while and check in because now they have to risk something to keep up with inflation, if they do not they could find themselves out of caviar in a matter of just a few generations. 

It really was sweet back then, big manse on a mountain looking down on all the fucking workers in Santa Rosa, plenty of coke and booze, wreck a car get another.  Cops look the other way when a rich man is involved, they shrug and let the insurance people take care of it because they know if they arrest a rich man they will be looking for work the next day.  Swimming pool heated in January for a party, 6 friends to ride along to your villa for a couple weeks in March in Jamaica.  Go to the mall and not have to deal with poor people because every store recognizes you and what amounts to a personal shopper comes to tend your needs.  Macy's was best at that.  Neiman Marcus for lunch in the city with Mom, models would bring dresses to her while we had cocktails upstairs in the atrium overlooking Union Square.  Of course, we had a card and there is no such thing as a limit on an NM card, if you have one you can afford anything they sell.  In fact we had a shoebox filled with cards, some of my favorites were for the casinos in Nevada, man what a good time Nevada is when you have the buckage.  Probably sucks for the people who live there though.

You know you are wealthy when you look down on Marin County as a bedroom community.  You know you are wealthy when you understand that there are two kinds of people in America, those with liquid funds and those without.  That the whole system is set up to make sure YOUR freedom is like a holy relic to which everyone prays, and who cares how they get along, it is enough to know that somehow they do.  And nobody in your ruling class will ever mention the constitution, they do not have to because they are already as free as any human ever will be, and to mention it is to remind your servants they are not.  Good help is hard to get at minimum wage you know. 

I know because I have been there, I have met and rubbed elbows with TPTB.  Recognized as an equal.  Prospected as a match for debutants, but only by wannabe types because the real elites knew I do not play on that team.  And then came the crash.  Divorce.  Of course after all those years I left with nothing but my clothes and the pink slip to my car, part of why gay marriage is held back in spite of popular support and rule of law, rich men do not want their lovers getting half of anything, bad enough their beard wives smoke them in court.  But, I did walk out of it all because trips to the flower mart in the city to pick up a few hundred dollars worth of blooming glory so you can have a spectacular dinner party, or a boozy game of tennis on the tennis court/helicopter pad are wonderful, everyone should enjoy it, and believe it or not this nation is rich enough everyone could enjoy it, but how much fun would it be to have ultra wealth and power when everyone has it?  Half the fun is making the 99% suffer to work for you. 

I saw it then for what it was, a manipulating evil.  It would have been OK if everyone who worked got in on it, but I have seen life at exactly the other end of the glass.  I have also been utterly homeless and broke.  Ever gone into a bar dead broke and acted like you belonged there so you could pick up a pack of smokes nobody in particular was watching?  Ever lived in a national forest for two years because you had no other place to go?  I have. 

Now I am coming to the end of my life and I wonder why people allow themselves to be so fucked.  It is not communism to have a minimum allowable poverty level and a maximum allowable wealth.  But even if it were I would say nobody ever should be hungry, or homeless because of lack of education or work.  If someone does not want to work then OK, but nobody should be cut out of life when they are willing to work.  And the rich?  No matter what system is ruling us, no matter what ISM you abide by there will always be those that have more than others and even the one with the most, they will always be the rich even if that is $100,000 rather than 70 billion.  This is why I do not understand republicans, what is it they want?  To be rich?  Divide the wealth perfectly evenly and we would ALL be rich, by world standards we would still be the wealthiest place in the world and because it is shared we would solve so many problems.  Not the least of which would be all the damned bitching from the right and the left. 

ratso's picture

Okay. I get it.  El Erian is saying MAYBE THE SKY MIGHT FALL.  This is the same guy who was predicting the immanent rise in Treasury rates because the Fed was doing QE 1 and 2.  It turned out that rates fell and teh sky did not fall then. 

Oh by the way on last check, the sky is not falling. 

BRING ANOTHER BOGEY MAN PLEASE,  This one is not very scary.

SheepDog-One's picture

No, the sky isnt falling. But the economy IS fucked.

Calmyourself's picture

Nah, we only have a political problem, the pols are not doing enough to satisfy the big banks and funds.  Once the pols toe the line our problem is fixed we don't have any problems like Europes unsustainable debt, nope..   15 trillion tis' but a flesh wound..

trav7777's picture

by fucked do you mean that we are having a discovery process where a lot of people are finding out that what they thought was a productive job really wasn't?

Gonna be a lotta that goin around...

i root for that fat jersey governor's picture

never listen to his bs. He loves fed printing money. first look you might say it is because PIMCO got it ass kicked by underweight in treasuries and they want to prove that are not big idiots as they are. but deep inside, el erian and especially gross are socialists for sure if not left extremists.

RaymondKHessel's picture

Correct they want and expect QE3 just like gold bugs do....

Big Slick's picture


Trading Places (@ 2:17)


donsluck's picture

Sorry to disagree, but Socialism is right wing, reflecting higher government control. It goes, from left to right, anarchy, libertarianism, democracy, republicanism, socialism, fascism - reflecting government control over individual action.

luna_man's picture


"ratso"...Even I'm tough, as long as the light's are on!...Light's go out,

I find it hard to sleep...I just know that "BOGEY MAN" is coming.


Just hope you're not too proud, to stand in the food line with the rest of us 99%'s.


Ropingdown's picture

El Erian is saying "Our parent company, Allianz, is going to be on the ropes if the US doesn't weaken the dollar and throw liquidity at Europe."  He's just using roundabout language.  Everybody talks their book all the time.  There are no neutral speakers.

Robot Traders Mom's picture

Has anyone seen my son? He was supposed to be home after school to help me do some chores.

EvlTheCat's picture

Mom, he skipped school today.  He's watching Netflix in your basement closet.

Comay Mierda's picture

where is Dr Paul Krugman's mommy?  we already have his dad on here - Million Dollar Dumbass.  he hasn't said much since he called for a turnaround in BAC at $6.08 lol

EvlTheCat's picture

You may not have noticed but HamyWangr is back.  MDB is off his lithium and has assumed his alter ego.

Sophist Economicus's picture

I think he said he was going to RiteAid to get his mommy some titanium Gillette razor blades....

sitenine's picture

Somewhat OT: Sorry to butt in, but does this bother anyone?

Seems to me that account holders are taking it up the ass again while the banks continue to get rich... Someone tell me I'm wrong.

mvsjcl's picture

Naw. It's all good, site9. JPM is once again stepping up to help a fallen comrade, and will pick-up the slack to aid the markets--at a steep cost to its own bottom line, I'm sure. Thank God for the JPMorgans and their ilk!

Doña K's picture

I think that it was the "oracle of kypseli" that floated the notion a few days ago that US will sink Europe and buy their assets on the cheap

CPL's picture

This is going to get sooooo ugly so fast.


I'm waiting for the US civil servant pensions to implode from a lack of MF Global being there to manage the theft properly.

Robot Traders Mom's picture

Yes, you are wrong. I'm sure any "deal" involving JPM, MF Global, and LME has to do with God's work.

sarc off

knukles's picture

No, it's not at all bothersome

It's fucking terrifying!

The whole fucking system has broken down.
This is a blatant conflict of interest, unstopped, unmitigated legally sanctioned theft.

DCFusor's picture

Whatever they are, they are expert at talking their book - and influential.

Doña K's picture

Just common sence dictates that the chances of anything happening at any time are 50/50. Attorneys will also tell you that no matter what, chances of winning or loosing in court are 50/50. (First year of law school.)

With everything happening arround us chances of depression are more than 50/50.

As far as recession (non-technical) we are in one.

We love and respect you Mr. El-Erian, but be honest with us.

CPL's picture

Between El-Erian and Taleb assing around with the pseudo-messianic concepts in finance, I'm pretty sure that it was a 50/50 chance that either one or the other would be discussing this.

The Fonz's picture

That is not how it works :) They have a zero percent chance of talking about it until someone does, then they all do.  It's like a pile of rice.  :P

Cadavre's picture

Does that mean my thanksgiving turkey has a 50% chance of surviving?


Kind of makes me feel like shopping - err - for something other than high gain frequency pulse modulating digital jammers and 12 gauge reload primers!

knukles's picture

Owwwww dat's a really scary. kids.

Terrifying.  Fucking terrifying.  Caught at the end of a dead alley way with no way out being pursued by a 1000 zombies wanting to fist you while they feast terrifying?
Followed by a pride of really fucking hungry lions terrifying?
Actual battle conditions terrifying?
Shit your pants and throw up all over yourself terrifying?

With a 50% chance of a recession terrifying?
Whatthefuckintheworld is wrong with you people?
This is why a manager underpreforms benchmarks and peers.

That's fucking terrifying.
Loosing all your AUM, no fucking bonus pool to retain your best people, get fucking bent over badgered and harassed at clients and consultants at meetings terrified?
Get fired terrifying?
Terminal cancer terrifying?

Fucking stroke, heart attack terrifying?

With a 50% chance of fucking drizzles.

Jesus Christ on a fucking lolipop stick terrifying.

Captain Kink's picture

Jesus Christ on a fucking lolipop stick terrifying

Damn!  I laughed afternoon coffee outta my nose!

Cheesy Bastard's picture

I am no longer terrified of shitting my pants and throwing up all over myself.  I have faced this fear and am stronger for it.

Calmyourself's picture

I simply shat a bit, over it now

TruthInSunshine's picture

Mo didin't get the memo?

Old St. Bernankio is on his way with a his sleigh, and everything's going to be fine this Christmas.

And look everyone! It's being pulled by gleaming green & white fiat!


You know Washington, Jefferson, Lincoln & Hamilton

Jackson, Grant, Franklin & McKinley

Cleveland, Madison & Chase, also...

...but do you recall?

The most famous fiat of all...

Woodrow Wilson the inflationary Fiat!