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10:24 PM on 07/25/2012
I think the analysis of John Hussman is on target: What interest rates are telling you; what the Federal Reserve is telling you; what the equilibrium created by lenders and borrowers is telling you – is that time is economically worthless and that economic malaise will extend for years.

This does not reflect a well-functioning economy. To the contrary, if you look across history and across nations, strong prospects for sustained economic growth are typically accompanied by high real interest rates, because the demand for capital is robust and good ideas have to compete for funding. Interest rates are an indication of both the demand for loans and the incentive to save. It is not “stimulative” to depress interest rates in an environment where households, businesses and governments are desperately trying to reduce debt. That policy may insult the value of time enough to deter people from saving, and to reduce the immediate penalty for assuming even larger amounts of debt (as the U.S. government continues to do), but it should be clear that these actions move the economy further from a sustainable equilibrium, not closer to it.
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30Taurus
Now is the time and you are the one.
09:58 PM on 07/25/2012
No actually what we need is major policy action to implement peaceful economic contraction. The endless-growth model is sooo 20th century. Let it go.
Growth increases consumption increases waste = more greenhouse gasses. It's over.
It's not about the money, Mr. El-Erian. Money does NOT = quality of life. Contraction done right CAN improve the quality of life.
Capitalism was a good experiment but until we find a way to cool down the planet, it's time to let it go in favor of community economics.
Check out Shamus Cooke on the political cost of global warming.
09:47 PM on 07/25/2012
This person is either lying or an economic illiterate. You don't lower interest rates when there is unemployment. Interest rates serve a very important balancing function between hiring and investing in capital (equipment to increase productivity). Natural interest rates are set like any price based on supply and demand. When people are saving there is more money to borrow and rates go down. When people are not saving either due to lowered income or spending rates go up.

When a business wants to expand it has to decide whether to hire someone or buy capital equipment to help automate a job. They perform a calculation to determine which is more economical. The key portion of this calculation is the interest rate. If the rate is very low it makes borrowing for capital purchases cheaper. If the rate it high it makes it more expensive and hiring becomes more attractive.

So these artificial low interest rates are making it possible for companies to grow by buying capital equipment and not hiring. This is exactly what is not needed at this point in time. Get rid of the Fed and let the market set the interest rates.
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novelist2000
veritas non olet
09:32 PM on 07/25/2012
I have often wondered why they see low interest rates as a panacea. Now that we have had low interest rates for te10/11 years and the problems seem to be getting worse, 'they' should now see it, too.

On the level of the individual, would anybody who has an insecure/contract job buy a house and take on the obligations of a mortage, even if the interest rate is 1%? Would anybody who is on the minimum wage take on a loan to buy new curtains? I don't think so.

Haven't wages been falling in America? Is it logical that low interest rates encourage people to spend money they have not got? Tomorrow they could lose their job, their income could reduce or be gone altogether. You even read daft things by someone who purports to be an economist. Abolition of the minimum wage would NOT affect the housing industry!?!?

I cannot see things improving through current policies, given that the tax havens are a taboo topic. Does anybody really believe shifting between 21 and 32 trillions to the Cayman Islands, Switzerland and Luxemburg has no effect on the state of a country? Sucking out that kind of capital is completely unhealthy - and so we have this situation. Most of us will not see the end of it unless serious change occurs. The Cayman Islands are ruled from London. Luxemburg is part of the EU. Switzerland is more cooperative than decades ago.
09:25 PM on 07/25/2012
Mr. El-Erian, firstly thank you for making me some good quid on some of your calls, however your calls on righting the economy have been dismal at best. Step up and really say what you think. Get off the intellectual left and start discussing a plan that will bring America back to prominence, you have milked the situation for too long and I think many are seeing this. The emperor has no clothes and you appear to be his haberdasher, of course in all due respect etc...
09:20 PM on 07/25/2012
frankly, I want to know why?

when I started my business and bought a small piece of commercial property I had to pay the higher interest rates of that time,

since the rate always changes and it is just some criminals ponzi scheme,

I say the fed owes everyone who paid off a higher interest loan

I want money back now!
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taxman100
09:20 PM on 07/25/2012
This is not new territory we are in. The situation is similar to what happened in the 1930’s. The problem is in the 1930, the US was able to put politics aside and provide enough stimuli to actual increase the number of workers and reduce unemployment. The problem is we have a republican party that is either trying to cause a depression, or is stupid. The economy is anemic so this is the perfect time to demand smaller government, less regulation, fewer unions, less education, less health care, a smaller safety net, and lower taxes. I say call the bluff. Let’s go over the fiscal cliff and see how many tea party people are happy with the outcome. Maybe we don’t need schools and teachers, courts, roads and bridges, a military, policeman, fireman, postmen, food inspectors, air traffic controllers, border guards. Maybe it is time the south succeeded to Mexico (they are into rich and poor with no middle class), and the north succeeded to Canada? Although I doubt Mexico would want Mississippi.
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niumarmion
a temporary being
07:23 AM on 07/26/2012
The neo-confederate politicians have already set up their corporate plan-tay-tions in China.
09:16 PM on 07/25/2012
in other words there should never be a changing interest rate for some monkey to manipulate,

that is the base,

if you change the base you just made a mess of what happened before it.

prime should always be steady and fixed,

but you like ponzi schemes so go ahead and have some more ponzi
07:51 PM on 07/25/2012
Really Mohamed A. El-Erian. You are an Egytian and have stepped up the ladder of success because of the laws and regulations this country enforces.

Do YOU want to debate ME on how this country should move forward!!!!!

I welcome it!!!!!
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09:29 PM on 07/25/2012
We know his credentials. What are yours?
12:23 AM on 07/26/2012
I'm a mathematican, a computer scientist and an automation expert. I replace people for a living.
 
But just this once in my life time, I want to leave this world a better place than I came in to and I know HOW!!!!!! 
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William Gaskill
Scientist, Engineer, Christian
07:31 PM on 07/25/2012
"What the world economy needs today is a coordinated set of measures to promote growth...." - I think the world is going to have to re-think the concept of "growth". We can all be "richer" but it needs to us to move more into the "virtual" world, where no additional resources are used, or additional pollution (primarily carbon dioxide) is generated. The real question is - Can the human race live in a non-expanding world indefinitely, as well as it has lived in an expanding one for the last 200,000 years?
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30Taurus
Now is the time and you are the one.
10:00 PM on 07/25/2012
True this. Growth is over, anyway you slice it.
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calm truth
07:31 PM on 07/25/2012
Ever notice how El Erian is large on rhetoric but short on ideas?
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09:31 PM on 07/25/2012
Good point - similar to Romney.
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Overtone
See bio on the Aesop Institute website
07:27 PM on 07/25/2012
There is a wild card that can reboot the economy.

Paul Krugman when interviewed by Fareed Zakaria on CNN said: "If we discovered that space aliens were planning to attack and we needed a massive buildup to counter the space alien threat and…inflation and budget deficits took second place to that, this slump would be over in 18 months."

Defense against the little recognized threat of a direct hit by a solar storm emission, slightly stronger than the one that grazed us about 10 days ago, would produce the same economic result!

Such a solar storm could bring down power grids for months, causing nuclear plant meltdowns.

Worldwide, 20,000 huge transformers can fail. LIGHTS OUT! POWER GONE! Safety devices, now in pre-production, could deter this catastrophe.

Another wise move would quickly make possible another 50 million solar roofs.

What needs to be done to prevent the worst can defend the grids, provide a boost to the economy, generate jobs, and save many millions of lives.

Wake up folks, the problem is all too real. And the life you save might be your own!
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09:36 PM on 07/25/2012
There are plenty of less speculative and more pressing infrastructure projects to provide stimulus to improve the economy. Resources are limited and need to be used efficiently.
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30Taurus
Now is the time and you are the one.
10:01 PM on 07/25/2012
Save your own life! Stop being so afraid! Fear kills!
We humans have lived a long time without "power." It'll be ok. I'll make some warm milk for you over a fire. You can nap.
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Overtone
See bio on the Aesop Institute website
11:50 PM on 07/25/2012
At 80 years of age, I am not the least bit afraid.

However, most of the world has been taking a nap regarding solar flares, and that can lead to hundreds of millions of needless deaths.

But, enjoy your warm milk. Ignoring a reality that is infrequent and extremely dangerous is a common reality.

Many of us seem to get our exercise by jumping to conclusions!
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06:58 PM on 07/25/2012
Let me make it simple. Your wages do not keep with inflation..and you fall behind in the wealth bracket year to year. If you are a responsible person..which apparently most people are..you don't go into debt..to keep buying the same things..you cut back..or buy cheaper things..the things usually made in foreign countries for less than 5% of what it would cost to make it here. We are being mislead by economists..either on purpose..or because they don't use the right data/facts. Somewhere in the near future it will be proven that the main models they use were completely wrong..either knowingly or unknowingly..you make the call.
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09:49 PM on 07/25/2012
Simple, yes, but informative, no. What major imported items can be sold for 5% of what it would cost to make in the US? Economists vary on their opinions. Are you saying they all are misleading us? What data/facts/models do "they" use and what are better sources? What are the bases for your opinions?
06:23 PM on 07/25/2012
Perhaps CGIRC isn't working as believed because institutions have rigged the markets for their benefit *with knowledge and even tacit approval* of nations who are now essentially powerless to take steps to remove the corruption because they have at times benefited and are co-conspirators?
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Frederick Bosick
Science and Computer Guy
06:08 PM on 07/25/2012
The low interest rates are *not* the cause of the global slowdown. They're a result of little borrowing activity by businesses that actually *do* something, while the big banks line up at the Federal Discount Window for free money while charging us 15% on our credit cards.

There is little demand for goods and services because consumers have no money. Yet corporate profits are sky high and the 1% kick back with even more ill gotten gains.

The solution is to hang 500 bankers and outsourcing CEOs, confiscate everything they own and distribute it to W2 workers making less than $50k/yr. Then tell the surviving execs to send home the H-1B visa holders and repatriate the offshore cash *and* jobs.
KIampfbeobachter
Misanthropic economic and political shaman
07:56 PM on 07/25/2012
In other words: tackle the trade deficit.
09:48 PM on 07/25/2012
Maybe we can just get rid of the Fed, legal tender laws, and fiat money.