Mohamed El-Erian gives us his thoughts on living in a Paranormal World

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Eurozone nations face another round of credit downgrades as Standard and Poor's is expected to cut the rating of several nations in Europe. France will lose its triple-A (AAA) according to it's finance minister, perhaps the most important of the downgrades. Meanwhile, although the european central bank is pumping out cheap cash to try and prop up the countries that need it, it's ending up right back at the central bank, as deposits there hit a record high. What does this mean for the Global Economy's future? We speak to PIMCO's CEO Mohamed El-Erian to see what the biggest bond fund in the world is thinking. And speaking of central banks, does a rotation of voting members at the Federal Reserve mean we may be headed for more quantitative easing? Fed officials meet later this month and are reportedly expected to talk about making such a move. But would this really matter and has the Fed become ineffective at this point? Mohamed El-Erian thinks so; he think QE3 is coming, but that the Fed will only act for the sake of acting, worried more about appearances than its ability to actually influence the economy at this point. And speaking of all this, it is Friday the 13th, which means paranormal activity abounds. We are not talking about the movie, but rather the world that Mohamed El-Erian and Bill Gross of PIMCO believe we now inhabit: a
world of bimodal, fat tail distributions. Of competing tail risks that and sandwiching our investment options and our economy between a rock and a hard place. At the very least, if you are living in the eurozone, you can feel this pressure coming to bear. The ECB's solutions certainly are not going as planned, and the downgrade of France and Austria are the least among its problems. Money from the central bank's most recent LTRO is coming right back to the ECB's deposit facility, as banks hoard the cash. Again,
we ask, what are they really afraid of? Is the risk a reflation of the global economy? Maybe, but to get that inflation, you need that money to enter the system's pipes, flooding liquidity throughout the economy. If banks are hoarding the cash, then deflation risk becomes a factor. Which tail will be activated? Will we see higher prices, or renewed asset price delevering. Mohamed El-Erian will be with us for a full 20 minutes to give us his take.

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[spark300c]

@NathanHaleLives first of all you got to understand that inequity is macro economic signal of economy that is under producing. another one reason why some have more money than others is that not have one has same skills. also some time someone invent more productive way doing things and get rich. inequality usually jumps when maximum production curve moves outward. however there have been people who discover that free market limits how rich they can get so they cheat.

[spark300c]

@NathanHaleLives that not my ideology of free market. If monopolies form dishonest means that mean they broken rule of the free market. Free market is free to all parties. You are explaining the some thing that does not have name and close thing I can that you are think of is a black market. It imposable to have a free market with out clean government.

[NathanHaleLives]

@spark300c In addition, you are talking about "healthy markets" that benefit all of us, not free markets. Free market ideology is a term used for people that do not want to abide by any government authority or any other authority. This is how you get your monopolies in America. if you are anywhere CLOSE to your "free market" ideology, this it. How's that workin for ya buddy? Of course the cartels have their way, they were no regulated. Fuck that. Socialism regulates these bitches.

[NathanHaleLives]

@spark300c First of all, not it does not. Adam Smith's "hidden hand" theory proposes that price discovery and the value of commodities will decide the flow of goods and services. Theoretically, there are no laws because the market dictates the ebb and flow of supply and demand. In the history of humankind, they have all been regulated because some greedy assholes tend to fall into more money then others. You are talking "legal regulation" of cartels that must be the LAW---REGULATIONS!

[mstipich1]

@doverlin

I agree abt the most. Dollar is not money any more... it's "currency".

[spark300c]

@NathanHaleLives first of all the fee market does have rules. these rule no thief or fraud. No can lie about what they are selling and they can not take way any one by force. another rule is that there can not be cartels. Cartels rig markets make it look it there competition when there is none and can be considered fraud. The 2008 finical crisis was large result of fraud and a banking cartel but there government also push for bank to lend to people who not pay back loans.

[spark300c]

most of these countries were welfare states with high spending. It was matter of time before they get in debt hole that they could not climb out of. welfare eat way it economy because a lot not want to work or start there own business and make looks heather and prosperous than truly is. the worst the economy gets worst inequity but gets people to drive to increase production. inequity is macro economic signal that economy is not producing at full capacity

[doverlin]

@mstipich1 The US will inflate away the debt and pay it back with dollars worth a fraction of what they were when those dollars were originally borrowed.

The dollar get stronger? Since 1913, the dollar has done nothing but get weaker. What makes you think it will get stronger? Perhaps if the dollar was based on a true gold standard as was prior to 1913 it would get stronger.

Holding cash is a stupid idea.

[NathanHaleLives]

@RTProducer Oh yeah, drop the commercials. Good idea.

[NathanHaleLives]

@spark300c Firstly, a free market cannot have rules..it's free. if you can unravel that conundrum you should get the Noble Prize in economics. But of course, no one can. Rich people and their stooges--selfish greed mongers (the jealous ones that cant be rich) buy into this ideology. Milton Friedman is one such stooge. Ron Paul is another one. The rich love free markets when they profit, and when they lose they raid the government treasury.Let's overthrow this government. Spirit of '76