El-Erian says “central banks can no longer repress financial volatility.

Big Al
January 8, 2016

The nosedive in the Chinese stock market and the slowdown in the world’s second-largest economy will certainly be front and center for global investors in the near term, but there’s a more important shift underway, economist Mohamed El-Erian said Friday.

The bigger issue for financial markets is that central banks are running out of ammo, the Allianz chief economic adviser told CNBC. “Markets are realizing that central banks can no longer repress financial volatility. And they are repricing to new volatility paradigm,” he said in a “Squawk Box” interview.

To that end, any shocks to the markets will take longer to reverse themselves, said El-Erian, former Pimco co-CEO. “What we’re going to see is every time something happens in the world it’s going to take longer to restore stability. That’s what we’re seeing with China today.

El-Erian said it’s a good thing the Federal Reserve is starting to normalize monetary policy. “They realize that they can’t artificially repress financial volatility.”

“What’s not a good thing,” he continued, “is we’re not doing the other things that need to unleash the productive capacity of the economy.”

The government needs to improve fundamentals to “validate financial assets,” El-Erian said.

He encouraged lawmakers in Washington to start with issues perceived as common ground, such as reforming corporate taxes, reducing debt and fostering public-private cooperation on overhauling antiquated infrastructure.

    Jan 08, 2016 08:39 AM

    the last line………..”encourage lawmakers”……….that will be the start of something new.

    Jan 08, 2016 08:00 AM

    Asking the political clowns to do anything is a waste!!! No wonder bill gross an el Erin had a fall out this guy is off his rocker as in completely out of reality… Btw not that I am any way shape or form a gross fan … They r all culpable for the monstrous paper debt sh…Ty mess we R in!!’

    Jan 08, 2016 08:15 AM

    So BIG AL! When we get’n ol’ Mohamed on as a guest?!? This guy knows his stuff and is one of the few truth tellers that is allowed in Bloomberg TV. Note to bashers, I only watch Bloomberg for the eye candy. 🙂