Common sense from Mohamed El-Erian. “I understand people who bet on moral hazard, on the Fed backstop. I don’t do it. I don’t think it is good way to invest. I’d rather invest on the basis of fundamentals.
Why has the Fed continually conditioned markets to expect them to step in and repress any volatility? And isn’t it time to stop doing that because you end up not only undermining the system itself but you undermine the credibility of an institution that is critical to the well-being for this and future generations.
We are increasingly in a lose/lose/lose situation for central banks.
You lose if try to undo what you’ve been doing.
You lose if you do more, and that’s what markets are pushing for. Markets are pushing for negative interest rates, for yield curve control, for even stronger forward guidance. Why? Markets are functioning fine.
And you also lose if you don’t do anything because you have this massive disconnect.
You focus on people. We have done a great job restoring the markets. Companies are laying off people. The Main Street program hasn’t got off the ground. Otherwise the social elements will start impinging on the economic elements.
Unless we take that seriously this economy is going to be so unbalanced it is going to be difficult to produce high economic growth.
https://www.youtube.com/watch?v=v9GicM9Qtc8
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Originally Posted by bull....
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