In 2009, Mohamed El-Erian predicted that the global economy was entering a "new normal" a period of sluggish growth as the hangover from the credit bubble endured. He is no more optimistic about the outlook today.
His money "is mostly concentrated in cash", he told the Orange County Register in a recent interview. "That's not great, given that it gets eaten up by inflation." But there isn't any value left in anything else. "I think most asset prices have been pushed by central banks to very elevated levels."
This has happened because the West began to rely on debt to juice growth instead of concentrating on infrastructure investment and tax and labour reform. With politicians and companies shirking their responsibilities, central banks "are the only game in town when it comes to policy".
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They don't have the tools to bolster growth and employment sustainably, "but they feel obliged to do something". So they set off asset booms to trigger the "wealth effect", hoping that people will spend and companies invest. The result has been a series of bubbles that don't provide a lasting solution to our problems.
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