Showing posts from July 31, 2011

El-Erian: U.S. Outlook Darkens

El-Erian: U.S. Outlook Darkens

This guy's pretty sharp.  I always try to listen when he's talking.  He paints a picture that I'm not happy to hear.
People, both foreign and domestic, are in cash because of uncertainties and valuations that were artificially inflated by QE2 and don't reflect the realities.

Additionally, we are in a debt overhang that has the following characteristics:

1 - Unusually sluggish growth on advanced economies, partiularly those that rely on financial services industry
2 - persistently high unemployment that eventually becomes structural and embedded in the system
3 - Regulatory response that raises uncertainties.
4 - Recurrent balance sheet issues.  Formerly clean balance sheets will become troublesome.

Possible solutions to debt-overhang for a government are:1 - Impose austerity.2 - restructure debt3 - inflate their way out of the problem4 - impose financial repression (tell creditors to go jump in a lake)
UK opted for austerity.  US is using f…