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Mohamed A. El-Erian

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A Make or Break Year?

Posted: 12/31/11 11:59 PM ET

Lots of things are coming together to give 2012 the feel of a make or break year -- a year that could well determine whether the world transitions to a better and more stable place or, instead, battles an even larger number of economic, political and social fires. The drivers in four key geographical areas will be heavily influenced by the interaction of political leadership, the strength and agility of institutions, and the newly empowered segments of society.

First, there is the US where, to state the obvious, the results of the November elections will meaningfully impact the path taken by the largest economy in the world, and its only superpower.

This is an election about the economy 00 past, present and future. In the next few months, we will all be bombarded by various explanations of why America lacks its traditional growth dynamism, why so many people remain un- and underemployed, and why poverty is rising to such unacceptable levels.

Influenced by movements on both the left and right that are able to effectively self organize and project near and far, our votes will send important signals on what is needed to overcome our economic malaise. I suspect that, collectively, we will opt for compromise rather than corner solutions.

We will challenge Washington to strike the right balance between tax and spending reforms, immediate stimulus and medium-term debt and deficit solutions, incentives for businesses and safety nets for the vulnerable segments of our population, etc. In the process, we will urge our politicians to shed legacy shackles in order to come together for the good of the nation.

None of this will materialize without effective leadership. Our leaders need to quickly unite on a common vision, distill common purpose, catalyze multi-year nationwide efforts, and embrace midcourse corrections as needed (and there will be quite a few given how many unthinkables are now realities in America and in societies that we interact with closely).

Europe, the second key area, no longer has room for compromise. Its "moment of truth" is in 2012 when critical decisions -- taken either actively or passively -- will determine whether the Eurozone breaks up or, to use the words of French President Sarkozy, is "re-founded" with a firmer foundation. Again, the interaction between popular movements, institutions, and leadership will be key.

Many more people in many more European countries will be taking to the street. They will be united by a simple demand -- to end the economic and financial turmoil that is killing jobs.

Europe cannot afford more political bickering, misdiagnosis, and incomplete solutions. Its leaders and institutions need to urgently pivot, abandoning active inertia that has been anchored for too long by the delusion of returning to a status quo ante that, in reality, is no longer feasible.

There is no going back to the old Eurozone of 17 countries. It is either fragmentation or a smaller and less imperfect union of countries with similar conditions.

This brings us to the third area where, also, there is no going back to the old -- the growing number of countries where dissatisfied citizens only have the streets, as opposed to also fair and free elections, to change their governments.

Such popular movements are no longer limited to the Arab world. They will pop up in many other countries.

The required pivots here are much harder and more complex. Most uprisings are led by leaderless grass root movements, enabled by social media and fueled by multiyear grievances. Rulers still hanging on to power often opt for fear tactics to divide citizens, thus repressing the forces of orderly change and experimentation that are an inevitable part of the political maturation process. And existing institutions are not much help, having been corrupted over many years to serve now-discredited elites rather than the newly empowered masses.

So, where does all this leave us?

America should be able to come together, recognize its structural challenges, and unite on multi-year efforts needed to promote economic growth, create jobs, and restore the sense that the system is fair. Europe should be able to redefine its regional underpinnings and, after the inevitable initial disruptions, regain the financial stability that underpins economic and social well-being. Newly transitioning countries should be able to pivot, albeit noisily and imperfectly, from dismantling the past to building a better future.

Regrettably, in today's world, what SHOULD happen does not easily translate into what is LIKELY to happen. Reality is far trickier, messier and, well, more uncertain.

Uncertainty is the defining characteristic of the fourth and final area where it is even harder to reconcile the should and likely. I am referring here to countries that are under enormous pressure and, to use Thomas Friedman's insightful analogy, can explode rather than implode when critically destabilized.

Countries like Iran, North Korea, and Syria face a mix of destabilizing influences that could well come to a boil in 2012. Containment forces will compete with those fueling accelerated change. And here, neither institutions nor leaders and popular movements can be credible and effective stabilizers.

By all counts, 2012 is shaping up to be a memorable year. In some areas, the potential clearly exists for societies to seize opportunities for change and transition to a better place. In others, stability can only follow a period of even greater uncertainty and risks.

This balance is not pre-determined. Much will depend on decisions to be made, and actions to be taken. Let us all hope that they end up tipping the balance favorably. There is a lot at stake.

 
 
 
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HUFFPOST SUPER USER
freedomny
99% = TBTF
06:15 PM on 01/02/2012
I believe that much of the rest of the world...those that are vocalizing their unrest in the search for equality and opposition to corruption....will be looking toward America, which has long been known as a "beacon" of democracy. This beacon, unfortunately, is definately in need of new batteries.

Our involvement in world leadership in the past has been reactionary and proactively violent...instead of leading by example. And any potential political leader needs to show that equality and democracy is alive and well in America. That the American people come first. Who will be that politican with guts? With integrity? Who will be the leader that says to the American People that corporations are not, in fact, people? Who acknowledges that the stock market is rigged for the very few, against the majority? Who supports term limits for all politicians. A politican who does believe that there is a need for campaign reform....because we cannot have great leaders if they are beholden.
,
I hope that this year we get some "true" leaders...who are ready to lead by example. Because what I feel we have now is - just more of the same. Nothing new, surprising, heroic, gutsy or really "American" in the sense of our core values. It's just another episode of "Dancing with the Candidates" or "The Candidette". And we are waiting to see who will pay as much money for this Presidency as they did for Kim K's wedding.

Banker
02:45 PM on 01/02/2012
Well, if only a UFO would land (Michael Rennie, anyone?), that would help move us all from this self induced precipice. That might create other issues, of course, but I digress.
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02:08 PM on 01/02/2012
The coming year is a simple one -- a large population is thinking deeply about choosing a president and a legislative body afterwards. They are thinking through the danger of new leaders from top to bottom plainly walking into the pocket of the 1% after voting is over.

Does this make things more complicated? No. The 99% will begin to drive things. They will push for a simpler way, something that is within their means, a honest market system where trust and entrepreneurship is possible again. Its quite exciting, the way ahead. If not for us, then for someone else certainly.
01:36 PM on 01/02/2012
Excellent, insightful, article - He recognizes how solutions are within reach if our leaders finally act. He also recognizes how difficult this may be. For an economist he seems to understand the pressures, and resulting volatility, being placed on the masses. In spite of the simularities, the extremes of these pressures very greatly depending on where someone lives. The stakes range from losing a job or a house to losing your freedom or your life. In any case the exceptance of the required changes presents the greatest challenge to leadership. Solutions must be perceived as fair and necessary or the resulting sacrifices we all must make will not be accepted.
12:34 PM on 01/02/2012
What should be noted is that in general we seem to be on a stalemate right now. In late 2010 there was a lot of confidence in the recovery, but this spurred a rapid hike in commodities prices that then posed a significant threat for that growth and actually affected consumers to the point of slowing down the progress. If, in fact, a stronger recovery is signaled for 2012, and no core changes are done in most commodities markets we will see another steep rise in their prices that will AGAIN hamper their growth... we´ve been seeing this cycle happen twice in the last 4 years, and we could see it happen again in 2012. Heavy nationalization, export controls and subsidies on important commodities (food and energy mainly) have been undergoing steadily for the last 10-15 years and it has taken its toll on the supply side, if this doesn´t change then we will see ourselves repeating the whole "good news - energy/food go up - slowdown" until who knows when. Any sign of significant recovery will shoot oil over the $130 mark and that will again hurt the recovery. That´s called a stalemate.
Yasmine
the DEFENDER in CHIEF
11:37 AM on 01/02/2012
THIS 2012 Election is really A MAKE OR BREAK ELECTION

ALL the SAFETY NETS will be DEMOLISHED One by one if the GOPTers are elected.

WE NEED a HUGE DEMocratic MAJORITY to COUNTER the trend .

Obama NEVER REALLY HAD a SUPER Majority because of the many many BLUE DOG Democrats who voted with the GOPers.

LET's AIM HIGH for 2012 YES WE CAN Again !

Where there is a WILL , there is a WAY...............we just have to TURN OUT and VOTE for DEMs as the ONLY ones who will PROTECT the Majority of People not the few.
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HUFFPOST SUPER USER
Martha Fair
12:07 PM on 01/02/2012
You tell us the Blue Dogs ruined it, yet you fail to list the Dems who are Blue Dogs. Which ones are they and is there any alternative or way to get rid of the traitors who set us up for failure?
Yasmine
the DEFENDER in CHIEF
02:58 PM on 01/02/2012
Martha in America a President is not a KING and he cannot do anything withour having a real working MAJORITY in the HOUSE and the SENATE. specially in the SENATE since ONE SINGLE Senator can STOP everything with filibuster.
SUPPORT the DEM Senator if you have one . WHICH State do you vote in ?
Yasmine
the DEFENDER in CHIEF
03:01 PM on 01/02/2012
Another thing Martha to consider is this :
Have you heard of the REAGAN DEMOCRATS ? well it is also the fault of those DEFECTORS , who betrayed the DEM Party since Reagan and made the Dem. Party weaker and weaker
08:33 AM on 01/02/2012
There is no uncertainty about what will happen in 2012. In 2012, governments will print and print and print pushing the confidence in currency to the edge.

http://thetsilverjournal.com
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HUFFPOST SUPER USER
Overtone
See bio on the Aesop Institute website
12:47 AM on 01/02/2012
An unrecognized mortal threat from a solar storm can cause multiple meltdowns at nuclear power plants.

Preventing 400 Chernobyls may become a major goal during 2012.

See the Aesop Institute website to understand the problem - and what might be done to prevent the worst from happening.

Ironically, wise action can dramatically improve the economic and political landscape.
12:06 AM on 01/02/2012
As a distant observer, it seems that the deliberate and catastroph­ic mispricing of risks in mortgage backed securities sold by Wall St. throughout the world, is one of the most egregious, crafty, successful and fraudulent schemes ever played on investors!

As incompeten­t U.S. politician­s (i.e., Paulson, Bush, Cheney, Levin, Shelby, Dodd, Bernake, Geithner, Clinton, Ruben, Greenspan) did nothing to prevent it, their Wall St. cronies & lobbyists laughed their way to the bank by betting against the same structured products in which they sold throughout the world.

Perhaps, the central question is how could politicians and bankers rape and pillage the financial system of a country for so long through deception and fraud without being accountable? (i.e., think 401k, real estate, giving millions of tax payer $ to countries(Israel, Egypt, Pakistan, Jordan, Kenya, Mexico, South Africa, Nigeria), bailing out N.Y.C. in the 70's, Paulson using tax payer $ for what in essence was a coup d'etat of the U.S. Treasury, etc...)

Wow, isn't capitalism great in the U.S.?

As a Chinese economist recently stated, where ever there is wealth in the world, Wall St. will find a way to steal it while politician­s do nothing to prevent it...

The stench of the financial crisis created by Wall St. and allowed by U.S. politician­s permeates from Shangai to Dubai...!
BigDaddyWow
This member is licensed to spank
10:47 AM on 01/02/2012
You state the situation well my fine little foreigner friend. Wallstreet is an insidious creature with whom the light of the Internet is only now beginning to illuminate for all to see. Your list of miscreant politicians though only begins to tell the story. I would like to add that Obama is THE president that has been in office since these crimes came to light.

As a conservative I can tell you that *everyone* hates Wallstreet. They are at best a very high tax on access to capital and at worst; we haven't seen their worst. But they do have vulnerabilities. The Internet for one. The fact that corruption of politicos does not happen overnight and can be curbed with term limits. That Americans can move their money out ... and do terrible damage. Sadly though you are talking about a war between a very small, smart and highly funded army versus a huge dumb and misguided army. Until Americans (main street) can unite to battle the Vampire Squid they will just continue to run their scams all over the world.
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HUFFPOST SUPER USER
Martha Fair
12:11 PM on 01/02/2012
Fave you also
Yasmine
the DEFENDER in CHIEF
02:17 PM on 01/02/2012
BigDaddy
wish you a wonderful New Year for your small biz.

BIG niew .........DEMS want to IMPROVE Health Care Laws with
a PUBLIC OPTION
That should help you Small Biz people.
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HUFFPOST SUPER USER
Martha Fair
12:10 PM on 01/02/2012
Great post telling it like it really is. Like I always said...money never leaves, it just changes hands.
HUFFPOST SUPER USER
duckfan00
Après nous le deluge
09:36 PM on 01/01/2012
Unfortunately current American CEO's and CFO's have done nothing but attack and eliminate the American worker....short term profits through outsourcing and layoffs....no real growth strategy or revenue ideas....just constant focus on Wall Street quarterly results and how to spin the numbers...they have their cronies on the leadership teams that take huge bonuses...of course stacking the Board of Directors with those who will rubber stamp their actions....
BigDaddyWow
This member is licensed to spank
10:59 AM on 01/02/2012
Your position is extreme. American CEOs have no requirement to take care of American workers. They are required to keep their corporations solvent and make profits. It is the job of our Federal government to make America the best place for corporations to have a home; and they are doing everything they can to the contrary. The good news is that despite regulations and misaligned union wages American workers are still considered the best in the world. CEOs also understand the profound economic advantages in keeping money in the pockets of Americans.

So instead of bashing CEOs (of course, Wallstreet CEOs are fair game) consider what it will take to keep US and foreign corporations in the US. It can be done, just not by Obama.
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HUFFPOST SUPER USER
Martha Fair
12:20 PM on 01/02/2012
When the unions were strong in this country, it enjoyed the highest standard of living that a country has ever experienced and the US was the envy of the world. Weak unions make weak countries so I guess you like the US becoming a 3rd world nation. The Republicans try to make people like you believe that it is somehow noble and proud to work for nothing but guess what? I am not buying it and neither should you. When the workers get paid more they have more discretionary income and thus make more sales and more jobs and the rich get richer.

If CEOs, banksters, lobbyists and politicians can unionize against the American workers, why can't the American Worker unionize? The American Worker is the one who drives the American Economy and the sooner you and your crony friends realize that fact, the faster the economy can be healed. Instead of slashing min wage for the American Worker, how bout setting a Max wage on the CEO's and letting the stockholders and the workers enjoy the extra bonus money saved?
Yasmine
the DEFENDER in CHIEF
02:32 PM on 01/02/2012
BigDaddyWow

Wait a minute BigDaddy........i agree with your FIRST paragraph,
BUT all the things that Corporations need to make it here is and has been considered by the Obama Aministration like reducing the corporate Tax rate and a tax exemption for all the Corporate CASH stashed overseas to come HOME.
The
PROBLEM is that bills cannot be passed in a filibuster Gop obstructionist Senate.
I simply do not buy that OBAMA is ANTI BIZ or ANTI Wall St or Anti Corporation.
IF
HE Were those things, his base and progressives would not be AGAINST him so much !
Obama is a Moderate conservative who really believed in Health CARE reform, so that costs would come down, which UNFORTUNATELY because of lack of PUBLIC OPTION may not bend the COST curve.
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Independent66
www.linkedin.com/in/harveyring
09:14 PM on 01/01/2012
I wish I had your optimism that politicians will find a way to begin to fix things here. We don't elect leaders, but political party drones. They are selected because they will follow the party dogma. Neither party will do much until we change the process to nominate people and get the money out of the process. There is no motivation to change the system in Washington so it will take all the States to hold a constitutional convention and change the constitution.
1. Term limits
2. No outside funding for elections. Every candidate gets $1m 4 months before the election to spend on their campaign. No PACs, no corporate money, no money of any sort.
3. Getting 5% of the voters in a District on a nominating petition puts you on the ballot and provides the same funding as anyone else.
4. Budgets must be passed before the fiscal year and must be compared to the past 2 years actual spending. No budget no pay until it is passed. If it is more than 90 days late the current members of congress lose their funding for their next election.

That should change the character and nature of congress. We should get real leaders to run vs the party drones we currently elect.
12:58 AM on 01/03/2012
This is great!

I assume you mean $1m for congressmen only, not for state and national elections, but one of the best parts is the limitation to 4 months of campaigning. I am so sick of the Republican circus all over TV, internet, and print that I want to move to a Himalayan mountaintop or some equivalent to be sure I don't have to see any more of it.

If you could effect this, Congress would suddenly learn how to do its job.

In re: another post of yours: Too late to look up cost figures now, but probably will in next day or so. However, I was including Iraq (most of that money will not be spent now, reducing budget needs equivalently) and the Republican give-away to Big Pharm by disallowing negotiation of drug prices for Medicare huge. Also removing caps for payroll tax will help there, as will jobs - if there ever are any.

Back to this post of yours: It's also too bad we can't give all the candidates truth serum before they speak publicly and IQ and knowledge tests before they are allowed on a ballot.
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Independent66
www.linkedin.com/in/harveyring
02:13 AM on 01/03/2012
The Governors of each state have a number of good reasons to call a Constitutional Convention to limit the power of the Federal Government. When 32m people get put on Medicaid it will sink just about every State budget. The Governors also want to limit the Commerce clause so that the Feds cannot infringe on States.
Since members of Congress would have strict 12 years in Washington, we will not have career politicians. I think a lot of other kinds of people will run for public office.
I'm going to pitch it to a few Governors to get their reactions.
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waitforitwaitforit
Hey ya'll, watch thi.......
09:09 PM on 01/01/2012
America should be able to come together, recognize its structural challenges, and unite on multi-year efforts needed to promote economic growth, create jobs, and restore the sense that the system is fair.

So, Mohamed old buddy, old pal.....exactly which US of A (aka America) are you living in?
09:00 PM on 01/01/2012
Expect business as usual until we change the way we fund political campaigns. Expect the Occupy movement to Occupy Media, recognizing it's the only way to bring public recognition that there's a movement, Get money out, aimed at removing the influence of money from our nation's politics, a movement which upon citizen awareness receives seemingly 99% citizen endorsement.
08:50 PM on 01/01/2012
If I hear one more business man or economist talk about economic growth, I'm probably going to spontaneously combust. Mohamed....you seem an intelligent individual. If so, please explain to me how an economy can grow infinitely when it is restrained by a finite resource base??? The current economic paradigm is based on an impossibility. If a physicist were to base a theory on an illogical premise he would be laughed out of his profession. But no...not economics. We take these idiots seriously and never question the basic assumption. ECONOMIES CAN'T GROW FOREVER! If you tire of the bs like I do, please check this link on ecological economics: http://www.grist.org/article/series/the-wealth-of-nature. Economic sanity does exist.
09:06 PM on 01/01/2012
Don't know the issue but the Economist last winter? did a piece on how modern economic theory has been completely rejected by the current schools of experts and its back to the drawing board. They are usually ahead of the American curve. worth reading.
09:22 PM on 01/01/2012
Thanks...I'll try to track it down. Keep spreading the word....apparently it hasn't gotten to Muhamed yet.
09:07 PM on 01/01/2012
Nothing short of balanced trade will restore acceptable levels of employment. Nothing short of public campaign funding will restore fair government. Nothing short of Occupying media will force our nation's media to give public awareness that there's serious movement afoot aimed at removing the influence of money from our nation's politics. Seemingly 99% of citizens endorse this movement upon awareness but only 1% of media gives citizen awareness that there is such a movement even though the numbers of members of Congress, The Senate and noted citizens endorsing it continues to grow.
11:53 AM on 01/02/2012
If you believe that 99% of the citizens of this country support the confused message of OWS you are sadly mistaken. America is, and always will be, a capatilist country. Although imperfect, capitalism provides the best standard of living. Socialist and Communist nations are becoming capitalist societies for this reason. The rhetoric from OWS is anti-capitalist and socialistic. As this has become clearer, support is declining. Demonizing the successful plays on the worst parts of the human psyche. Envy, jealousy, and self pity are destructive behaviors. Even more disturbing is the growing numbers in society that embrace victimhood. Blaming others for their misfortunes and failures and having no personal accountability. This accomplishes nothing and encourages stagnation. When people except responsibility they are empowered to improve thier lives. When they blame others they become powerless. I do agree lobbyists need to become a thing of the past and with public funding for campaigns, shortened campaign cycles, and equal air time from the media for candidates. No more PACs, special interests, unions, or corporations influencing an election. No more using your own money to fund a campaign. Candidates should earn office based on their ability and ideas not the size of their warchest. I also agree with banning bail outs. No more money to banks or car companies. Each company should rise and fall based on the expertise of the work force and managment team. We can unite behind issues like these and truly become the 99%.
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HUFFPOST SUPER USER
lisalulu
I stand for Planned Parenthood.
08:50 PM on 01/01/2012
Just started reading Jeffrey Sachs' "The Price of Civilization," and Andrew Weil's "Why Health Matters"....... Both authors offer insight and guidance for humanity, especially Americans.