Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Chinese Tech Stocks CCP Paranoia and Best AI Tech Stocks ETF - 26th Oct 21
Food Prices & Farm Inputs Getting Hard to Stomach - 26th Oct 21
Has Zillow’s Collapse Signaled A Warning For The Capital Markets? - 26th Oct 21
Dave Antrobus Welcomes Caribou to Award-Winning Group Inc & Co - 26th Oct 21
Stock Market New Intermediate uptrend - 26th Oct 21
Investing in Crypto Currencies With Both Eyes WIDE OPEN! - 25th Oct 21
Is Bitcoin a Better Inflation Hedge Than Gold? - 25th Oct 21
S&P 500 Stirs the Gold Pot - 25th Oct 21
Stock Market Against Bond Market Odds - 25th Oct 21
Inflation Consequences for the Stock Market, FED Balance Sheet - 24th Oct 21
To Be or Not to Be: How the Evergrande Crisis Can Affect Gold Price - 24th Oct 21
During a Market Mania, "no prudent professional is perceived to add value" - 24th Oct 21
Stock Market S&P500 Rallies Above $4400 – May Attempt To Advance To $4750~$4800 - 24th Oct 21
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

El-Erian: U.S. Very, Very Long Way from Debt Default Risk

Interest-Rates / Credit Crisis 2011 Aug 08, 2011 - 03:03 PM GMT

By: Bloomberg

Interest-Rates

Best Financial Markets Analysis ArticleMohamed El-Erian, co-CEO of PIMCO, spoke to Bloomberg Television’s Betty Liu and Erik Schatzker this morning regarding the S&P downgrade and its impact on the markets and economy.

El-Erian said that the S&P downgrade is perhaps not yet the “Sputnik moment” and that the costs and risks of any new QE have gone up. Excerpts from the interview ca be found below, courtesy of Bloomberg Television


El-Erian on the S&P downgrade and whether it is a political statement: “We hope this is a wake-up call, that this is what politicians needed to realize that unless they get their act together, the standing of the U.S. will go down. Unfortunately, this weekend did not speak to that Sputnik moment. We had a very public and unfortunate clash between the S&P and Treasury. That does not help either side. We also have the blame game in Washington about who lost the AAA. They pointed to each other and no one wants to come together yet. Let’s keep our fingers crossed. Early indications are that this has not been the Sputnik moment we need for this economy.”

On what we need to get the economy growing: “People have to realize the S&P downgrade is not really about the ability of the U.S. to meet its payments. No one doubts the ability of the U.S. to meet its payments. It is about the ability of the policymakers to get their arms around the problems and put this country back on the path of growth, jobs and prosperity. Until they do that, we risk further downgrades. S&P has us on a negative outlook. Moody’s has us on the negative outlook.”

On whether he expects to see downgrades from Moody’s and other ratings agencies: “Only the agencies can reply to that. What worries me the most is that this is a further hit to business confidence and to household confidence. It comes at a fragile time for the economy. It is not a surprise that most analysts are revising down their growth estimates. There has been talk over the weekend about recession. This is not a good situation. We have to remember how fragile the economy is.”

On what he’s watching in the markets today: “Look at what the equity investors are doing. Are they going to stay in or say they cannot take the volatility and uncertainty? Look at how Europe’s response to what was a dramatic statement by the ECB and the indication that they are buying Italian and Spanish bonds. Keep an eye on the CD sovereign CDS’. S&P has opened up the prospects of further downgrades to sub-sovereigns in the U.S. It raises the question about other sovereigns.”

On whether we’ll see downgrades of other AAA countries and whether there is a new metric given S&P made a statement on the politics of the U.S.: “I do not think they are making a new statement. They have five factors they have had for a long time. One is the ability and the willingness to apply. Ability it speaks to whether the engineering can be sorted out. Willingness speaks to whether there is a political will. The market is looking at other countries. French debt to GDP is higher than the U.S. Yes, it is on a downward trend, but isn’t France in for all the support of the peripherals? That kind of talk is unsettling. That is why the French CDS is so much wider today.”

On what would happen if investors change their minds about the attractiveness of Treasuries: “There is credit risk and default risk. Credit risk is whether borrowing costs go up because the country’s deficit and debt is out of control. Default risk is whether a country actually defaults. The U.S. is a very long way from default risk. In addition, it has a printing press. Unlike Greece, Portugal, and Ireland, the U.S. has a printing press. It has many ways to avoid default. The best way is through growth and fiscal soundness. But there are other ways–they have collateral damage. The U.S. has many more degrees of freedom than Greece, for example.”

On his argument that there may be a migration to a system where the U.S. is no longer the center of the financial universe: “That argument is certainly what other countries feel and what the Chinese said over the weekend speaks to that. I was referring to the fact that the global system is built on the assumption of AAA at its core. That AAA supplies the reserve currency, the dollar, and the most liquid and deepest financial markets, the U.S. government bond market and that enables other countries to outsource their savings to us. As the AAA comes under pressure and becomes AA+, people will look at the margin for alternatives. You get a fragmentation of the global system. That is the path we are on if the U.S. does not promote growth and fiscal soundness.”

On what Ben Bernanke and the Fed should do to help restore confidence in the markets: “This puts the Fed in a very, very tough position. The first thing it has to do is revised down its outlook. It still has a cheerful outlook for growth bouncing back. It has been talking about transitory elements and not enough about structural elements. The Fed is going to have to have a reality check on its projections. The Fed is going to have to be very clear that when it comes to conventional policies and interest rates, it is not hiking any time soon. The Fed is going to have to decide between the benefits of unconventional policies–QE3–versus the costs and risks. The Fed is uncomfortable because over time, the costs and risks have gone up and the benefits have gone down. It is not as clear as it was with QE1 about whether the Fed should have another round. This is going to be a very difficult time.  I suspect there will be heated discussions at the FMOC and Jackson Hole.”


bloomberg.com

Copyright © 2011 Bloomberg - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in