The U.S. and European economies are about to swallow a lethal cocktail of poor growth and poor policymaking that can send listing economies deeper into crisis that could take decades to heal, says Mohamed El-Erian, CEO of Pimco, the world's largest bond fund.
"We are here because of the interactions of three distinct, yet inter-related forces: poor economic growth, excessive contractual liabilities, and disappointing policy responses. The result is that western economies are getting trapped by the lethal combination of an unemployment crisis, a debt crisis, and mounting fragilities in the banking sector," El-Erian writes in a Reuters column.
"I worry that, absent a dramatic change in policies in America and Europe, things will get worse before they get better. I fear that, given this possibility, it would then take years, if not decades, to repair the underlying damage done to economies, jobs and people’s lives around the globe."
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Mohamed El-Erian
(Associated Press photo) |
Investors would be wise to consider that even though many stocks may appear cheap today, they may get even cheaper.
"Yes there are already opportunities but they will be even more attractive down the road given that the world is now subject to both a synchronized slowdown and de-leveraging."
Federal Reserve Chairman Ben Bernanke, meanwhile, says monetary policy authorities are ready to act should a weakening economy throw unemployment and price levels out of their comfort zones.
The Fed "will continue to closely monitor economic developments and is prepared to take further action as appropriate to promote a stronger economic recovery in a context of price stability," Bernanke tells Congress’s Joint Economic Committee in Washington, according to Bloomberg.
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