If you’re tired of all the political ballyhoo surrounding debt and deficits, says PIMCO’s Mohamed El-Erian, you’re far from alone. However, he says, conflicts over how to deal with high levels of debt and political histrionics over the best ways to do so will be around for a long, long time.
The problems of Europe and the U.S. are somewhat different—the former a solvency problem, the latter political. Yet the results are the same: painful budget restructuring.
In his monthly commentary on Reuters, El-Erian (left) says the best and most painless way to exit a de-levering action, which he defines as “the rehabilitation of balance sheets that have gotten over-indebted to such an extent that they are unsustainable going forward,” is through economic growth.
Growth, however, is not currently an option, unless “policymakers become more serious about a comprehensive and coordinated set of measures to remove structural impediments to sustained economic activity—including steps to improve the functioning of the housing and labor markets, better worker retooling and retraining, enhanced education systems, even more bank lending, improved productive infrastructure, etc.”
None of this is happening, however, on either side of the pond, leaving four less desirable solutions to be tried.