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’”