Fi­nance The­ory

The Economic Times - - Breaking Ideas -

It is im­por­tant to un­der­stand what was done and what was not done. I think of this in [terms of] a very sim­ple hospi­tal anal­ogy. The US econ­omy and the global econ­omy [from Septem­ber to De­cem­ber] of 2008 were in the in­ten­sive care unit.

They came very close to a multi-year de­pres­sion that would have dam­aged not just the liveli­hood of the cur­rent gen­er­a­tion, but fu­ture gen­er­a­tions too. And the emer­gency room doc­tors did a great job in avoid­ing what would have been a ma­jor dis­as­ter.… This pa­tient now is out of the hospi­tal.… But this pa­tient is struc­turally im­paired. The best this pa­tient can do is walk. She or he can­not run.

More­over, the pa­tient re­lies on painkillers and has be­come hooked on to the painkillers. So, that’s what has hap­pened. The painkillers are the in­jec­tion of liq­uid­ity that are be­ing pro­vided by cen­tral banks around the world. The struc­tural im­ped­i­ments have to do with in­suf­fi­cient in­fras­truc­ture, in­suf­fi­cient labour re­tool­ing, too many pock­ets of ex­ces­sive in­debt­ed­ness, a cor­po­rate tax sys­tem rid­dled with anti-growth ex­emp­tions and in­suf­fi­cient global pol­icy co­or­di­na­tion.

We need two things to hap­pen: the struc­tural im­ped­i­ments must be ad­dressed, and as that hap­pens, you are go­ing to be able to re­duce the dosage of painkillers and make sure that the pa­tient doesn’t fall vic­tim to the col­lat­eral dam­age as­so­ci­ated with pro­longed re­liance on painkillers. That is the hand­off that’s re­quired.

From “Pimco’s For­mer CEO Mo­hamed El-Erian on the ‘Delu­sion of Liq­uid­ity’”

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.