Pacific Investment Management Co. (Pimco) CEO Mohamed El-Erian, a sought-after commentator on the United States’ economic condition, has called the past decade a “lost decade” of unemployment and dismal tidings for the nation’s labor market, reports Bloomberg. El-Erian also thinks the economy is used to moving forward and never looking back. Loans are needed by more individuals than the credit market can allow. A “new normal” is setting in. He thinks America will get used to it.
Unemployment and labor in U.S. still doing bad
El-Erian explained that there is nevertheless a high unemployment rate, credit markets aren’t lending and also the labor market isn’t really being fixed by the federal stimulus. Charles Nenner of the Charles Nenner Research Center is even more pessimistic. On Bloomberg Television’s “On the Move,” Nenner predicted that the Dow Jones will fall to 5,000 within two years, underscoring El-Erian’s belief the U.S. economy isn’t really as flexible as policy experts believe. Playing with interest rates and holding hands out for an instant money bailout aren’t necessarily the best springboards to long-term recovery. Those who don’t care about the future and just want to make themselves better right now by taking cash without considering the long term impact are likely to do really bad in the end.
“This country has very weak safety nets,” El-Erian said on “Bloomberg Surveillance.” “It is built on the assumption that our labor markets are very flexible, that if you lose your job in California you move somewhere else, you get another job, and what we’re seeing is structural unemployment.”
Some trying to get high quality assets
Pimco’s strategy has been to stock up on high quality assets. The company’s Total Return Fund, which has returned 11.8 over the past year (besting return on peer bonds by 67 percent, writes Bloomberg), is the largest of its kind within the United States. El-Elrian still thinks things are wrong. Structure should be more significant within the country. Between the stimulus and the U.S. housing market, the recovery seems quite far away. The U.S. economy needs to restructure the way business is done. ”It needs other agencies to help and in particular, it needs structural policies to be there,” Bloomberg reported El-Erian saying. “Put another way, you need to stimulate not just demand, but also you need to make supply more flexible.”
El-Erian’s concept of a “new normal” could act as a fresh rubber band that will snap back after economic calamity, or a faux safety net made from IOUs and dreams of wild market speculation.
Additional reading
Bloomberg
bloomberg.com/news/2010-08-30/el-erian-sees-lost-decade-for-u-s-jobs-amid-weak-safety-nets-tom-keene.html
PIMPCO
europe.pimco.com/LeftNav/AboutPIMCO/Milestones.htm
Understanding the “new normal”
youtube.com/watch?v=t8oyYYBJGX4
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