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October 04, 2011 at 05:38 AM
Referring to the Friday market selloff, which ended the worst quarter of losses on the S&P since Q4 2008, Mohamed El-Erian, CEO and co-CIO of PIMCO, said that it was a “particularly bad omen” for worse times to come.
In a Monday Reuters opinion piece, El-Erian said that, while he would like to say that all the volatility and fear in the markets was just an “irrational cycle of self-feeding fear,” instead he felt that, despite the continuing solidity of multinational companies, the market was instead sending signals about rapid deterioration in the world economic outlook. It was also, he added, “lamenting astonishingly inept policy-making in far too many western economies.”
Unless policies in both the U.S. and Europe change drastically, he said, the global economy will get worse before it gets better—much worse, taking years, if not decades, to recover and damaging both economies and lives around the world.
Focusing on three factors he said were responsible for the situation, he ticked them off: poor economic growth, excessive contractual liabilities, and disappointing policy responses. As a result, he said, economies in the West are bound up in the trifecta of an unemployment crisis, a debt crisis, and a banking sector that is growing increasingly fragile.
