11.03.2010
PIMCO | Mohamed El-Erian - We've Voted. What's Next For the Economy?
We've Voted. What's Next For the Economy?
- With the two chambers of Congress split between Democrats and Republicans, the conventional wisdom likely to be repeated over the next few weeks is that political gridlock is good for the economy. While often true, that is not the case today.
- Democrats and Republicans must meet in the middle to implement policies to deal with debt overhangs and structural rigidities.
- The economy needs political courage that transcends expediency in favor of long-term solutions on issues including housing reform, medium-term budget rules, pro-growth tax reforms, investments in physical and technological infrastructure, job retraining, greater support for education and scientific research, and better nets to protect the most vulnerable segments of society.
via pimco.com
Mohamed El-Erian, Co-CIO/CEO of PIMCO and the voice on the street that I trust utmost in times of uncertainty, casts a veil of uncertainty over the seemingly decisive electoral mandate claimed by the GOP in yesterday's triumph at the polls. The insurgent nature of the GOP movement, spearheaded by the Tea Baggers (Party), does not inspire hope in the prospects of overcoming the policy gridlock in DC that must be addressed before any fundamental changes can be made to the country's rapidly deteriorating long-term fiscal health with an aging population and public pension liabilities light-years beyond the tipping point of permanent insolvency.
Due to the "great age" of leverage, debt and credit entitlement, and the related surge in structural unemployment, the private sector is not in a position to control its own destiny. Emerging markets are rapidly eroding traditional economic and political competitive advantages enjoyed by the US. It is hard to disagree with El-Erian in his conclusion - the extreme nature of today's political discourse is ill-suited to tackling the pressing issues of our time.
Mid-term elections, QE and the markets: Tea and QE | The Economist
But there is also a nice irony at work. The tea party is opposed to massive government spending and bailouts. But QE is a way for the central bank to finance that government spending and to pump money into the banking sector. So on the day that the tea partiers may be celebrating, an unelected central bank will be carrying out a programme, probably totalling several hundred billion dollars, that will cut against everything the partiers stand for.
via economist.com
Buttonwood accurately foresaw the overwhelming victory of the Tea Baggers and we are now mere hours from the likely Federal Reserve announcement of QE2 and the resumption of the printing press. The irony observed in the above excerpt - that the Fed is poised to undermine everything the Tea Baggers fundamentally stand on through its independent monetary authority - is unlikely to be fully appreciated by the media as the day progresses. It will be interesting to see the response of the freshly invigorated GOP activists in the coming weeks leading up to their inauguration early next year. I suspect the radical tone will be subdued by political realities and market uncertainty, not to mention the radical shift in mindset that accompanies a transition from insurgent to incumbent.
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