Bloomberg reports what Pacific Investment Management Co. (Pimco) CEO Mohamed El-Erian thought about the labor market. Bloomberg reports that he thinks it is a “lost decade” of unemployment. El-Erian also said the economy in the U.S. is used to never looking back when moving forward. More individuals than ever need a loan, but the credit market will not presently bear the demand. He thinks a “new normal” in America is getting set in.
Still difficulties with unemployment and labor
El-Erian explained that there is still a high unemployment rate, credit markets aren’t lending and 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 forecasted that the Dow Jones will fall to 5,000 within two years, underscoring El-Erian’s belief that the U.S. economy isn’t really as flexible as policy experts believe. Long term recovery won’t happen when interest rates change and instant money bailouts are given to people. People and institutions that search for emergency money without understanding the long-term impact of borrowing from the future to prop up the present are doomed to fall from the trapeze and strike bottom.
El-Erian said “This country has very weak safety nets” 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. There has been a 11.8 return within the last year in the company’s Total Return Fund. Bloomberg explains that it is better than the peer bongs return of 67 percent. El-Erian thinks the country needs more structure. The U.S. housing market isn’t helping the recovery along with the stimulus that isn’t helping things either. The U.S. economy needs to restructure the way business is done. “It needs other agencies to help and in specific, it needs structural policies to be there,” El-Erian informed Bloomberg. “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.
Further 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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