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 predicted that the Dow Jones will fall to 5,000 within two years, underscoring El-Erian’s belief the U.S. economy is not as flexible as policy experts believe. Long term recovery won’t happen when interest rates change and instant money bailouts are given to individuals. People and institutions that look for payday cash 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.”
Stocking up on high-quality assets
High quality assets are bought by Pimco right now. 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 in the United States. 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 really helping things either. Businesses occasionally need restructure. The economy needs this kind of restructure. “It needs other agencies to help and in unique, 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 thinks the “new normal” might just snap back following the economic calamity that is set by all of the dreams and wild market speculations going on.
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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