Bloomberg reports what Pacific Investment Management Co. (Pimco) CEO Mohamed El-Erian thought about the labor market. Bloomberg reports that he thinks it is a “lost decade” of unemployment. El-Erian also said that the economy in the U.S. is used to never looking back when moving forward. The credit market won’t even allow as numerous people as needed to get loans. America may have to adjust to a “new normal,” he believes.
Nevertheless a lot of issues with unemployment and labor in U.S.
El-Erian explained that there is nevertheless a high unemployment rate, credit markets aren’t lending and also the labor market isn’t really being fixed by the federal stimulus. Charles Nenner of the Charles Nenner Research Center has an opinion on it too. It is also very negative. El-Erian thinks the economy isn’t that flexible when Bloomberg Television’s “On the Move” showed Nenner thinking the Dow Jones will go down to 5,000 in two years. Giving people free instant cash by holding hands and changing interest rates won’t help anything. It especially won’t help long term recovery. People and institutions that watch for money now without understanding the long-term impact of borrowing from the future to prop up the present are doomed to fall from the trapeze and strike bottom.
El-Erian said on “Bloomberg Surveillance” that “This country has very weak safety nets.” “It is built on the assumption that our labor markets are very flexible, that if you lose your job in California you move somewhere else, you get another job, and what we’re seeing is structural unemployment.”
Stocking up on high-quality assets
High quality assets are bought by Pimco right now. The company’s Total Return Fund, which has returned 11.8 over the past year (besting return on peer bonds by 67 percent, writes Bloomberg), is the largest of its kind in the United States. El-Erian thinks the country needs more structure. The U.S. housing market isn’t really helping the recovery along with the stimulus that isn’t helping things either. The U.S. economy needs to restructure the way business is done. ”It needs other agencies to help and in specific, it needs structural policies to be there,” Bloomberg reported El-Erian saying. “Put another way, you need to stimulate not just demand, but also you need to make supply more flexible.”
El-Erian’s concept of a “new normal” could act as a fresh rubber band that will snap back after economic calamity, or a faux safety net made from IOUs and dreams of wild market speculation.
Further reading
Bloomberg
bloomberg.com/news/2010-08-30/el-erian-sees-lost-decade-for-u-s-jobs-amid-weak-safety-nets-tom-keene.html
PIMPCO
europe.pimco.com/LeftNav/AboutPIMCO/Milestones.htm
Understanding the “new normal”
youtube.com/watch?v=t8oyYYBJGX4
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