Pimco’s El-Erian to Obama: Fix Ignored Parts of the Economy

Wednesday, 07 Nov 2012 01:21 PM

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President Barack Obama should spend his second term improving large swaths of the U.S. economy that never recovered from the 2008 financial crisis, said Mohamed El-Erian, CEO of Pimco, manager of the world’s largest bond fund.

Big dynamic sectors like Corporate America are fine now.

“Your real challenge lies in reinvigorating the larger part of our economy and society that has yet to regain a firm footing since the devastating 2008 global financial crisis,” El-Erian wrote in a letter to Obama appearing on CNNMoney.

Editor's Note: Obama Donor Banned This Video But You Can Watch it Here

To do just that, the president needs to craft policies that prep the work force to compete in an increasingly global marketplace while depending less on housing to drive the employment picture.

The president also needs to find ways to improve the home and home-finance sectors, improve the way credit is both approved and distributed and, lastly, deal with short-term and longer fiscal imbalances.

“This can be done; and it should be done. And when it is, America will restore annual growth rates of 3 percent and above, reduce unemployment to below 5 percent, increase the employment-to-population ratio back to above 60 percent, reverse the persistent deterioration in our government debt-to-[gross domestic product] ratio (currently heading to 100 percent) and improve income and wealth inequality,” El-Erian wrote.

“And through all this, your administration would definitely restore the vitality of the middle class, strengthen social cohesion and enhance America’s global influence.”

Don’t fear congressional balking and brinkmanship, either, El-Erian advised.

By appointing a type of economic spokesman or point person such as a cabinet member to drive home to the American public the nature of the economy, its indicators and what all needs addressing, lawmakers will be more willing to put aside their differences and work together with the White House.

“Americans are deeply resentful of the dysfunctional Congress. We know that this has retarded our economic recovery and financial sustainability. And we are ashamed to admit to foreigners that it has been three years since our Congress has approved an annual budget — and this, after all, is the most basic element of economic governance,” El-Erian wrote.

“By being open about our multi-year challenges and by detailing the extremely fluid global environment, you can mobilize the nation to put proper and timely pressure on Congress to cooperate.”

In the meantime, Obama faces an immediate challenge and will need the support of Congress to tackle it — the fiscal cliff.

At the end of this year, the Bush-era tax cuts and other benefits expire at the same time cuts to government spending are due to kick in, a combination known as a fiscal cliff that could send the country sliding into a recession next year if left unchecked by Congress.

Furthermore, the country might hit its debt ceiling again and require Congress to lift it to avoid default, a scene reminiscent of the 2011 debt-ceiling debate in which congressional brinkmanship raged on until the last moment, when lawmakers lifted the borrowing limit and narrowly avoided default.

Expect brinkmanship to repeat itself but also expect a deal at the last moment or even one struck after the cliff arrives.

“We may briefly go off the cliff in early 2013 before an agreement is reached, creating the risk of financial turmoil at year-end,” Nigel Gault, chief U.S. economist at IHS Global Insight, according to the AFP newswire.

“The fact that the debt ceiling will need to be raised sometime early in 2013 adds an unwelcome extra complication.”

Editor's Note: Obama Donor Banned This Video But You Can Watch it Here

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