10/24/2012 05:07 pm ET

Mohamed El-Erian: U.S. Faces 'Lost Decade' If Politicians Don't 'Make Difficult Decisions'

NEW YORK -- The U.S. risks a "lost decade" if politicians keep pursuing the same failed policies, according to Mohamed El-Erian, chief executive of the giant PIMCO bond fund.

"Without their involvement, without their ability to make difficult decisions, we will not solve the fundamental problems facing the Western economies," El-Erian said in a speech at The Economist's Buttonwood Gathering on Wednesday. "Ironically, I worked on the Latin American debt crisis in the '80s. That was the same risk, and we know that debt crisis led to a lost decade."

El-Erian, who leads one of the world's largest bond funds, named no names. He said U.S. politicians are wasting the time that the Federal Reserve is buying for them with its unprecedented stimulus measures. He said that some politicians are not addressing the current crisis, either because they can't understand the new environment or because they have fallen into "active inertia" -- that is, pursuing the same policies even though the world has changed.

El-Erian was echoing the complaints of Federal Reserve Chairman Ben Bernanke and other economists in noting that fiscal policy is failing to meet U.S. economic challenges, which he said include high unemployment, slow economic growth, high government debt, deep political polarization, and inequality of income and wealth.

"These politicians seem to be more interested in bickering and in dithering than in leading," El-Erian said.

El-Erian added that politicians have to address the economy's problems "in a way that convinces people you’re leading them somewhere that’s better than where they are." But the longer they wait, El-Erian said, the harder their job becomes.

"It is very tempting to turn your back on this because it is a very challenging and uncomfortable place," El-Erian said. "If we turn our back on this challenge, then our children’s generation will be encumbered with very high debt, very low growth dynamics, high unemployment, pronounced inequality of income and wealth, and dysfunctional politics. If that happens, then for the first time in a very long time in the U.S., our kids’ generation will be worse off than that of their parents."



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