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Pimco’s El-Erian Says Public Finance Shock May Deepen

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March 10, 2010 – Comments (0)

Pimco’s El-Erian Says Public Finance Shock May Deepen
By Garfield Reynolds

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[excerpt]

March 11 (Bloomberg) -- Mohamed A. El-Erian, whose company runs the world’s biggest mutual fund, said deteriorating public finances around the world may affect the global economy more than is currently realized.

“The importance of the shock to public finances in advanced economies is not yet sufficiently appreciated and understood,” El-Erian, co-chief investment officer at Pacific Investment Management Co., wrote in an article on the Financial Times Web site. The potential damage from increased government borrowings is “at present being viewed primarily -- and excessively -- through the narrow prism of Greece,” he wrote.

Governments may have to raise taxes and slash spending to cope with swelling deficits after nations including the U.S. borrowed unprecedented amounts to stave off the global financial crisis, said El-Erian, 51, who shares his job title with Bill Gross. A failure to carry out fiscal measures in time would raise the possibility of governments seeking to eliminate excessive debt through inflation or default, he said.

Pimco has said debt strains in Greece, Portugal and Spain underscore its view that 2010 will be a year of slower-than- average growth, and predicts there will be a shrinking global role for the U.S. economy.

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