News & Analysis
Pimco's El-Erian: Divided US Government No Longer Good for Economy
A divided government no longer benefits the U.S. economy as it did in the past, said Mohamed El-Erian, CEO of fund giant Pimco. In the past, indecisiveness and political stalemates in Washington prevented policymakers from passing laws that got in the way of the private businesses, which were otherwise free to go to work with Washington out of their hair. "It was once fashionable to argue that a divided government was good for the economy," El-Erian wrote in an OpEd appearing in The Huffington Post. "The view then was that politicians would be too busy with political brinkmanship to get in the way of a dynamic private sector. As a result, unfettered by government interference, the private sector was more likely to invest, hire and prosper ... It is hard — very hard — to make this argument today." – MoneyNews
Dominant Social Theme: Government needs to get back to work.
Free-Market Analysis: Presumably, this is an emergent dominant social theme that Mohamed El-Erian is giving voice to. Perhaps it is a subdominant social theme, as well.
The dominant social theme is, of course, that government is good and among humankind's most necessary inventions. The subdominant social theme could be that government has never been more necessary than NOW.
Why? Well, as El-Erian suggests, the world in general, and the US specifically, has a need for a steady hand on the tiller. What he doesn't indicate, of course, is that it is government and central bank monetary policy that has placed Western economies in jeopardy in the first place.
To some degree, of course, El-Erian is "talking his book." He manages US Treasuries and it is not in his interest if the US as an entity and its fixed income instruments are downgraded. He wants the US – and government in general – to be responsive and make necessary changes.
For this reason, he's made this statement – which certainly goes against what has often been repeated in the business community. The idea that a divided government is good for the economy and the private sector has been a favorite truism of political analysis as well.
For the powerful El-Erian to reverse this perspective is a fairly significant event in mainstream financial circles. Here's some more from the article:
"Our self-inflicted fiscal cliff drama may be the most visible illustration of Congressional political dysfunction, but it is unlikely to be the last one or the most challenging," El-Erian wrote.
"It would also undermine the country's longer-term growth potential and, with that, the ability of many citizens to realize the American dream."
Lawmakers themselves say they understand anger on the part of voters when it comes to the fiscal cliff, a potentially recessionary combination of tax hikes and spending cuts due to take effect at year end.
"I don't blame people at home for wondering what in the heck is going on in the nation's capital," said Sen. Mary Landrieu, a Louisiana Democrat who is up for reelection in 2014, according to Politico. "It's hard to explain. ... I don't think it looks good for either party."
Now Mary Landrieu may believe people are wondering what in heck is "going on" in DC (like El-Erian) but we would tend to believe such statements are disingenuous. Did Ms. Landrieu not notice what has become known as the Tea Party? This constituency is not "wondering" about the US government. In aggregate it wishes to dismantle much of it.
It is perhaps unfair to suggest that El-Erian, too, is ignoring what has taken place, but his solution – to utilize current sociopolitical tools more energetically than ever – is perhaps not feasible long term. The system, we would argue, is dysfunctional on purpose.
This is, in fact, the preferred method of the top elites, for whom El-Erian works. Business as usual is the order of the day. In fact, the just resolved (for the moment) Fiscal Cliff is a good example of how these things occur.
Nothing changed for the US as a result of the agreement to avert for the moment the Fiscal Cliff. The debt remained the same, the regulatory structure, the endless fiat money printing of the central bank.
El-Arian may want focused government officials to make necessary changes in the US and throughout the West. But one has to ask, what is it that modern government is to do?
Certainly, El-Erian wants a return to a previous status quo in which government debt was seen as properly apportioned and not overwhelming and in which US consumers – buoyed by easy money – pursued a virtually endless buying spree.
But the trouble is that the current economic system is set up to gradually fail. Central banking creates booms and then gigantic busts and economies both centralize and subside as a result. Eventually, the plan seems to be for world government to gradually emerge. Those who have created the current system have built an environment that like a shark only moves in one direction, forward.
For a number of reasons, then, what El-Erian is asking for may not be realizable. Government officials shall continue to overspend. The culture of corruption will grow. Sooner or later (and probably sooner) El-Erian's US bond market will experience a precipitating event that will burst what some have called the biggest fixed-income bubble ever.
This is no doubt what El-Erian really fears, a destabilizing element that crashes bond prices and causes rates to rise hard and fast. But he is looking at these issues narrowly and obviously does not sense how much the larger sociopolitical conversation has changed in the US.
The dissatisfaction that created the Tea Party has not gone away. While many are proclaiming a US recovery, any real economic advance will generate considerable price inflation. That's because the tens of trillions printed by central banks will surely start to circulate, causing rates to rise and choking off "green shoots" once again.
When it becomes clear to people that this greatest recession since the depression of the 1930s is not really over at all but is destined to go into yet another phase, as it did in the 1970s, whatever patience remains is likely to be exhausted.
El-Erian and others may wish to turn to renewed government activism to "solve" the 21st century problems that government has caused. But those who have set up the current system did not apparently intend for it to remain stable. And what we call the Internet Reformation is likely to continue to undermine people's willingness to put up with the status quo.
For more about what people are learning about the economy thanks to the Internet, see this Daily Bell Special Report: "The Best Free-Market Economics and Pro-Liberty Educational Resource on the 'Net and Why I Use It Religiously."
Conclusion: We are not at all sure that El-Erian's plea for a renewal of activist big government is line with what realistically can – and will – occur. He and others in his position may wish for such an event but we would guess that the opposite may be in the offing, more divisiveness rather than harmony. The 21st century will be nothing like the 20th, in our view.
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Posted by Abu Aardvark on 01/04/13 04:36 AM
Danny B on 01/03/13 09:27 PM wrote: "Aardvark, don't bet the farm on wind energy. The system described is even more expensive than current systems. The current system lives on subsidies. "
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Danny, I wouldn't bet ANYTHING on wind energy. In the contemporary form it's an outright fraud and just another convenient statist control tool. Besides, as you correctly note, it 'works' only with subsidies, as one who lives in Germany and pays a hell of a lot of money for that crap knows all too well ...
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Posted by Danny B on 01/03/13 09:27 PM
Aardvark, don't bet the farm on wind energy. The system described is even more expensive than current systems. The current system lives on subsidies.
Click to view link
Plus;
Click to view link
Here is an excellent vid on propaganda;
Click to view link
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Posted by Abu Aardvark on 01/03/13 10:41 AM
Another OT link - Apple just filed a patent application:
"ON-DEMAND GENERATION OF ELECTRICITY FROM STORED WIND ENERGY"
Click to view link
See also:
Click to view link
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Posted by GWBramhall on 01/03/13 10:29 AM
But for divided government we would be over the cliff already.
True the Republicans have their pet projects (war and the
perscription drug benefit) but at least they recognize that we
have a problem while the Democrats want to continue on their
merry way. What does El-Erian and his type really want? A
benevolent dictator that will make all the right decisions for
all us children? Examine the entirity of history and you'd be
hard pressed to find one. While on the other side is Hitler,
Stalin, Mao, Castro, and for at least another couple weeks Chavez.
I'm sure we could fill up this site with more names of the
dictators who didn't exactly work out, but thie country, the most
successful in human history, was founded on the separation of powers
and the protection of the rights of the minority. It is the
abandonment of these principals that has let us to the sorry state
we now find ourselves in. This is not the time to roll the dice and
see if Obama left unchecked, can lead us to the promised land.
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Posted by dave jr on 01/03/13 10:01 AM
@ rossbcan
Except the "problem solvers" squander resources. Nobody knows where the population/resource tipping point is. And it is already evident that developed populations, minus immigration, are capable of voluntarily reducing on their own. Man as part of nature will balance, there is no choice.
I suspect the population/resource dilema to be manufactured. It serves as a concocted reason to control. The controllers have shown their hand, and they are not here to help.
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Posted by rossbcan on 01/03/13 09:13 AM
@dave jr
"Or a declining GDP"
Bear in mind that GDP, as currently defined is the sum of productive plus unproductive activities. It is certainly not a measure of economic health, since increasing war, regulation, litigation, entitlements, social conflict all increase GDP.
Now, if GDP equals productive activity MINUS overhead MINUS unproductive activities, as HONEST businesses and accountants measure prosperity, it would be immediately clear that overall productivity (equals prosperity) is on a sharp decline in general. Eventually, on this trend, many will starve or self-triage in conflict over resources.
This is the point: somebody has decreed that there are too many of us and is arranging matters such that this "problem" is rectified at the expense of the "problems" and not at the expense of the "problem solvers" whose role is purely manipulative.
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Posted by dave jr on 01/03/13 08:38 AM
"It would also undermine the country's longer-term growth potential and, with that, the ability of many citizens to realize the American dream."
I think this needs to be examined as a dominant social theme, the idea that GROWTH is needed in order for citizens, or any economy, to function, to prosper, to be comfortable and happy. On a per capita basis, what is wrong with a steady GDP? Or a declining GDP for that matter if new ideas, innovation and efficiencies went back into the economy where they came from, to increase the standard of living. As one progresses through life he accumulates, learns and increases his station, leaving a vacancy for a younger underling. What is wrong with one being able to pass his wealth on to his heirs without jackals snaring and feasting on it?
The people and their economy do not require growth overall. But a system of fed/gov using fiat as the main weapon needs growth to become bigger and more effective at dominating. They want growth in GDP because it is the easiest portion to confiscate. You don't know what you lost if you never had it. What is with the fed mandate of 2% growth? All ponzi schemes feed on growth.
And then, the only reason we needed a federal government in the first place was to maintain a standing army. Now look at it. We have no standing army. It's on the run, over there and everywhere. It's not even protecting us. It doesn't even protect its own diplomats. It runs on narrow commercial interests which itself has come unhinged from the economy. Or perhaps it never was hinged in the first place, just walking in lock step in order to feed. The disguise of delivering freedom and democracy was always suspecting. A powerful dose of debilitating terror is useful in convincing the unbelievers. Do we have to squint our eyes to see what needs or wants growth?
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Posted by rossbcan on 01/03/13 07:27 AM
@Danny B
"Without consumption, the economy remains flat."
"Default is in the cards."
Actually, before default, "war is in the cards". THEY need to destroy what people already have, to dramatically increase difficulty of survival, to change the bias point of work required for survival so people produce, "just to survive".
The difference is: default of fiat is default of nothing real. If hyperinflation wipes out the REAL value of debt (NOT incurred in any honest way, nor with "consent" of those expected to pay - the productive), the problem still exists that unproductive predators NEED to secure real goods and services, at the expense of others.
When they can no longer suck on fake debt and the fake currency / obligations is perceived as it is: worthless, then, THEY need "plan B".
That'll be WAR, domestically against the residual productive and, internationally against "low hanging fruit".
This has already been happening, for quite some time:
Click to view link
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Posted by Abu Aardvark on 01/03/13 05:42 AM
Holy cow! Get THIS:
New York Times: "Let's Give Up on the Constitution"
Click to view link
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Posted by dkmeller1 on 01/03/13 02:07 AM
Somebody is either being disingenuous, or being stupid!
When was the US government (or ANY government) "good" for an economy?
Government by its very nature, relies upon taxation and counterfeiting, with their inevitable and progressively greater drain of savings and resources from productive use. They also misdirect the use of their ill-gotten gains their own goals at the expense of the people who were made worse off by being robbed, hence goods and services that would have been brought into existence never are.
Their regulatory bureaucracy and its meddlesome and ignorant interventions also deny opportunity which otherwise would improve the lives of countless people, while giving artificial privilege to well-connected grafters, crooks, and ne'er do wells who would NEVER thrive in a genuinely free market environment.
The almost uncountable billions of $$$$$ that are occasioned by wars are altogether the result of government action, and of this particular government--the DC regime and its military--in particular. The murder, torture, civil liberties denials and other such barbarity notwithstanding, the titanic amount of resources drained away from taxpayer subjects for warmaking purposes are no longer available for more worthwhile opportunity and profitability elsewhere.
Governments everywhere function as a monopoly. In every service they provide, they exclude the POSSIBILITY of entrepreneurs availing themselves of profitable opportunities to fulfill the demands of consumers of those services, from the court system (mediation and arbitration of disagreements, along with securing justice where rights have been violated) to the post office, to access to REAL healthcare services or money, etc.
In all cases, government prohibits the possibility of entrepreneurial opportunity and customer satisfaction by running everything to suit itself and their favored cronies and swindlers! The impoverishment of the rest of us is becoming obvious.
I could go on, but I think that I have made my point. Government is "no longer" useful to the economy in the same way that botulism toxin is "no longer" useful for securing one's good health!
PEACE AND FREEDOM!!
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Posted by taxesbyanyothername on 01/03/13 02:05 AM
Blinded by the light. All of these people in government, finance and academia are so well informed that they can't tell their A$$ from a hole in the ground. I suspect that the average Joe and Jane, even most of those on the dole, can tell that government(s) are actively destroying any chance of recovery, whether it be economic, cultural or other. The fact that most of those more educated, and thus supposedly better able to judge such things, are unable to, is as much due to their being more economically and thus more psychologically invested in the system, as it is to their more thorough indoctrination.
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Posted by Danny B on 01/02/13 11:26 PM
"the just resolved (for the moment) Fiscal Cliff is a good example of how these things occur."
"the Congressional Budget Office, the last-minute fiscal cliff deal reached by congressional leaders and President Barack Obama cuts only $15 billion in spending while increasing tax revenues by $620 billion-a 41:1 ratio of tax increases to spending cuts."
Click to view link
Yup, it's all fixed.
"That's because the tens of trillions printed by central banks will surely start to circulate"
Once again, Dear Bell, I have to take issue with your conclusion.
The generally accepted explanation for price inflation is;
A greater amount of currency chasing a fixed amount of goods.
While there is a greater amount of currency in the upper loop, there is a diminishing amount of money in the lower loop. The "greater" amount of money is chasing stocks and bonds.
The lower loop where the consumers live and operate has diminishing currency.
The upper loop can conjure up all the paper they want. They can NOT spur the lower loop to spend money they don't have. They can NOT spur the lower loop to take on more debt (not forever).
Without consumption, the economy remains flat. Price inflation will just extinguish more and more sectors of discretionary spending as people shift a higher percentage of earnings to survive. So, while some sectors may see price inflation, the overall consumption will shrink.
GOV has been trying to make up the difference in lost consumption. That eventually produces an unsustainable debt-interest burden.
You really can't get overall price inflation without a wage-price spiral.
There is no wage inflation. How can there be price inflation if the consumer can't consume?
Click to view link
The fiscal cliff was a mechanism to squeeze out more money to make it available to the banks. The current debt,,, the average rate of interest on U.S. government debt was 2.534 percent at the end of November. If that number just rose to where it was about a decade earlier we would be in a massive amount of trouble.
Back in the year 2000, the average rate of interest on U.S. government debt was 6.638 percent. If we were at that level today, the U.S. government would be paying out more than a trillion dollars a year just in interest on the national debt.
I just don't see price inflation hand in hand with austerity.
There is no recovery in sight as long as the corporatocracy is in power. Small business is the driver for job creation. Corporations get favorable treatment that kills small business. Dead will continue to be DEAD.
The bankers are soon to get the shaft in a big way.
"the reported EU plan "to make private bond holders shoulder some of the pain from any sovereign debt restructuring after mid-2013" is as good an indication of a benchmark as any I've seen."
Regarding the highlighted portion, check this out:
Sweeping reforms to shift the burden of rescuing failing banks from taxpayers to bondholders"
Click to view link
Besides this, there is the implementation of the Basel III rules. Banks need to raise between $7 to $11 trillion in fresh capital.
Both banks and sovereigns need MANY trillions of $$$$$$$$$$$$
The producing economy can't create it, especially with austerity. The printing presses are trying to do it singlehanded. U.S. and Japan need to roll over $ 5.8 trillion in the coming year.
The Eurozone needs $ 17 trillion if memory serves.
There is just no possible way to squeeze the producing economy for this. I suspect that the presses can't do it either.
Default is in the cards.
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Posted by Agent Pete 8 on 01/02/13 09:41 PM
Happy New Year/Age/Method/Viewpoint/Responsibility/L.O.V.E to All.
Love the new Site ThanXXX Team and the new feely touchables, which I am yet to fully explore/enjoy: a potentious candidate for remedial therapy against such divisory conker-playing compromised math-clowns, as described eloquently in the article above.
The Pimco/El-Erian Title may be simpler and more accurate when shortened from:
"Divided US Government No Longer Good for Economy"
to:
"US Government No Longer Good for Economy"
or, again shorter/better:
"Government No Longer Good for Economy"
Now were getting somewhere, keep going...
Carefully remove "Government No Longer", we are left with:
"Good for Economy".
... Aha! now try the further simplified and improved for wider acceptance, version, by removing the manic adherence to money part: "for economy".
All that remains then is
"GOOD"
Thanks for the inspiration, Pimco's El-Erian, and again AW/Elves/DB/FAFMT of course.
Semantic Scissors Solve!
The pressure/vaccum conditions for a simpler systems round-reach, are extreme-ridiculous now. OK, I'd better review the T&C next with a chainsaw, or at least check if they've changed.
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Posted by 1776 on 01/02/13 07:03 PM
Liberty Republicans Fight For Control of Miami-Dade County GOP
Click to view link
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Posted by 1776 on 01/02/13 04:18 PM
Fraud, Money Laundering and Narcotics. Impunity of the Banking Giants. No Prosecution of HSBC By Tom Burghardt Global Research, December 31, 2012
Click to view link
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Posted by 1776 on 01/02/13 04:11 PM
"I'm Embarrassed For This Generation! The Future Generations Deserve Better" Louie Gohmert
Click to view link
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Posted by nailheadtom on 01/02/13 01:46 PM
Those madcap days of the late 90s, fueled by debt rather than productivity, are in the steadily receding past, never to be repeated. Considering them as "normal" and hoping for government policies to enable a return to that era is self-delusion bordering on insanity. Millions are still paying on credit card balances that were used to purchase designer clothes that have gone to thrift stores, making car payments on vehicles that are at the end of their useful life and paying on mortgages for property the value of which is still a fraction of the purchase price. If standard of living is predicated on how many appliances there are in the kitchen, the number of channels in the cable TV service and cars parked in the driveway perhaps we're seeing a slide in that standard. Which might not be all bad. A general deflation in the compensation for sports stars, entertainment figures, bank officials etc. wouldn't be an international disaster.
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Posted by rossbcan on 01/02/13 11:58 AM
"the agreement to avert for the moment the Fiscal Cliff"
call it like it is: they AGAIN ignored the problem, which was a creation of previous legislative "igroring the problem", punting it down the road. To address it is to "take responsibility". Ignoring it is to enable blaming greedy capitalists.
Their "reading of the tea leaves" is "nothing like a good crisis, to rationalize accumulating more power". Apparently, the "fiscal cliff" is not yet a big enough "problem" to rationalize the "big solutions" they have in mind, such as "nationalizing the economy" and thievery writ larger than it already is.
So long as THEY profit, it will be an escalating "more of the same". This is basic "Addict 101" behavior.
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Posted by rossbcan on 01/02/13 11:41 AM
DSS: "Government needs to get back to work."
Good luck. Just like herding cats, a bunch of selfih, glib psychopaths, pursuing THEIR interests providing the illusion of pursuing the interests of fools, with an never ending stream of "$hit happens" excuses when they are called on it.
Best to fire (or forcefully evict) the lot of THEM and replace them with true public servants and employees (ie; free market service providers) subject to "no work, no pay" natural (as opposed to THEIR) compulsive law.
Since, "we, the people" appear to lack the wit and cohones to "do our job" as final "line in the sand" defence against tyrants and criminals, the grim reaper of "Mathematics of Rule", a blunt instrument is doing the job for us:
Click to view link
