MOHAMED A. EL-ERIAN WARNS THE WORLD
Note! Mohamed A El-Erian is the head of PIMCO, world’s largest bond foundation. He is world renown for his economic insight.
Many topics are being teed up for next month’s annual meetings of the International Monetary Fund and World Bank in Washington, a gathering that will draw about 190 country representatives. There is a substantial risk of disappointment, one that would be detrimental to the welfare of billions around the world over time.
This risk can and should be minimized. To do so, the natural inclination for complexity must urgently be replaced by focused simplicity. This can be achieved by placing just one question on the agenda:
Why are economic policies in industrial countries proving so frustratingly ineffective?
Already, there are too many examples of policy outcomes that have fallen well short of expectations.
U.S. HIGH UNEMPLOYMENT
In the U.S. alone, just look at the high unemployment …
EUROPE, DEBT RISK
In Europe, dramatic policy actions have failed to calm concerns about solvency risk in peripheral countries such as Greece, Ireland, Portugal and Spain.
Risk spreads in these countries are worse than they were a few months ago, even after the much-heralded stress tests of banks, previously unthinkable support from the European Central Bank and exceptional funding from other governments and the IMF.
JAPAN, DEFLATION
Meanwhile, in Japan, the government seems helpless to counter a currency appreciation that will further damp economic activity.
RISK OF PROTECTIONISM
The world also faces a high risk of a surge in protectionism as governments struggle to balance the economically desirable with the politically feasible.
THE PUBLIC IS WORRIED
Policy makers need a greater buy-in from their citizens, who, according to polls, currently doubt their seriousness and effectiveness.
The IMF and World Bank meetings could align increasingly divergent national narratives with a single, common question. The resulting clarity also would put industrial countries in a better position to call on emerging economies to assist in improving the global economic outlook.
GREATER EROSION AND A “DOUBLE-DIP”
It would be tragic if the Washington meetings went to waste and the well-being of billions was left to face the possibility of greater erosion.
Let’s not wait for a double dip in industrial countries and a deflationary trap to regain the commonality of purpose needed to create a pathway for more effective policy making.
Dr. Pinna says:
Mohamed A. El-Erian is rightfully recognized as a leading interpreter of future economic events. He is trying to shepherd the world’s highest governmental representatives into a state of acknowledging the danger of a Great Depression.
But, the Great Depression of 2008 is already here, and it wont go away. Mohamed A. El-Erian is too late.
