Pimco’s El-Erian: Global Central Bank Easing May ‘End in Tears’

Friday, 05 Apr 2013 08:56 AM

By Dan Weil

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Central banks around the world continue to jack up their easing programs, but they’re having little success in boosting their economies.

In the United States, gross domestic product (GDP) expanded only 0.4 percent in the fourth quarter. Meanwhile Japan’s GDP grew 0.2 percent in that period.

The Bank of Japan announced Thursday that it plans to double its monetary base within two years. And the Federal Reserve is buying $85 billion of Treasurys and mortgage-backed securities a month.

Editor's Note: The Truth About the Economy — Government Documents Lead to Eerie Conclusion

"This is the most experimental we've ever seen central banking," El-Erian told CNBC. "They are venturing deeper and deeper, using imperfect tools. And they're not getting the response they expect."

The stock markets of the United States and Japan have soared in recent months, but the economies continue to limp.

"Rather than step back and ask why [the measures haven’t succeeded], they [central banks] just go deeper and deeper," El-Erian said.

"The question is, will they finally succeed in transitioning from assisted growth to real growth, or will it end in tears? I think that's a major uncertainty, and the market doesn't quite understand just how binary this outcome is."

Other analysts were more excited about the Bank of Japan’s new moves than El-Erian. It decided to buy about $79 billion of bonds a month, far exceeding economists’ expectations.

“It’s fast and furious,” Takuji Okubo, chief economist at Japan Macro Advisors in Tokyo, told Bloomberg. “The specific mention of a two-year time horizon was a positive surprise.”

Editor's Note: The Truth About the Economy — Government Documents Lead to Eerie Conclusion

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