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Join Eric Chemi and financial titan Mohamed El-Erian of Allianz as they dive deep into the pressing economic forecasts for 2024, inflation realities, and strategic wealth building amidst looming recession fears. Unpacking the intricacies of the current economic landscape, El-Erian delivers unparalleled insights into navigating the volatile markets, ensuring your investments weather the storm. From structural economic shifts to central bank missteps, this episode is an essential guide for anyone looking to safeguard and grow their wealth in uncertain times.


Eric Chemi 0:05
Welcome to Wealthion. I’m your host, Eric Chemi. Today I am really thrilled because we’ve got a luminary in the macro economic community. Mohamed El-Erian joins me today on the show, Mohamed, thank you so much. I want to just bring you in right away before I tried to go through all of your titles and everything that you’ve done so far.

Mohamed El-Erian 0:22
Thank you, Eric. And thanks for having me.

Eric Chemi 0:23
So, you know, I know you’re the president of Queens College at Cambridge, I know you’re a senior economic adviser to Allianz where you had been the CEO of Pimco, and the CO Chief Investment Officer over there. You’ve written this book permit crisis with Gordon Brown, and Michael Spence, you’re a columnist for The FT for Bloomberg, you’re on, you’re on so many things. So I’m just trying to figure out, how are you managing your day? How are you managing your time? Because you’ve got 10 jobs all at the same time? How do you do that?

Mohamed El-Erian 0:52
So talking to you, I admire how you manage your day. So look, I’m very lucky because I’m able to structure my day. And I learned a trick when I was very young, which is let structure do the heavy lifting for you. So I structure my day, I structure my year in such a way, that that times when I’m concentrating on one thing, that times I’m concentrating on something else, and then during the holidays, tends to be a lot less of the multitasking. So I use structure a lot of the time to do the heavy lifting. I like that using structure to do heavy lifting.

Eric Chemi 1:30
Because all of a sudden, when I look at your Twitter profile over the last couple of days, a lot of media appearances. So maybe there’s a sense do you do you go into sort of a media rabbit hole, and then maybe you go into a writing rabbit hole and and you stay focused on certain tasks, depending on the season or the time of year it is.

the time of year it is.

Mohamed El-Erian 1:47
So the big secret about me is I’m inherently lazy. If you left me on my own, I would watch sports all day long. So again, the notion of using structure, I pre commit to certain things. And I pre commit to certain things as a way to keep me disciplined. And I tried to get the things that are pre commit to be to be connected. So for example, I pre commit two articles. And I pre commit to two TV appearances a week, as a minimum, in order to appear on TV for 10 minutes, I prepare for two hours.

Eric Chemi 2:25
Right? Right. There’s a lot behind the scenes,

Mohamed El-Erian 2:27
it’s the worst input output, because I don’t know what I’m going to be asked. But because of that, I ended up with material for my articles. So a lot of this stuff is all connected. There’s a lot of cross fertilization that goes on between what I do. And all that also helps me then think about the bigger issues. When I sit on public boards, or when when I tried to write a book,

Eric Chemi 2:52
I’m curious for someone in your position, you have access to anybody in the world that you want, right? I think about your book was written with a Nobel Prize winner, and a Prime Minister of England, right? Most people don’t have access to those kinds of, of individuals who have all that knowledge and all that wisdom. Do you feel like you’re at this point where you can see the world differently? You see the markets differently than, let’s say, an economics journalist or a normal person who’s just working on Wall Street? Do you have certain access that changes your perspective from when you read something in the news? When you read the ft? Or you read Bloomberg, you read the Wall Street Journal? Do you think? No, they don’t get it? Because they’re not in the room? They’re not in the rooms that I met?

Mohamed El-Erian 3:35
No, not really. I tell you where, what, what really has influenced me when I was 13 years old. I was living with my parents. My father was a diplomat. And we were still he was stationed in France at the time in Paris. And every day, he would get phone newspapers. And I remember him telling me that I should be reading all four newspapers. And I don’t remember,

Eric Chemi 3:59
You should be reading all four or that he should be reading all four?

Mohamed El-Erian 4:01
I should be reading all four

Eric Chemi 4:03
As a kid.

Mohamed El-Erian 4:04
Yeah. And I remember first of all, the last thing I wanted to do is read one newspaper, let alone four and a 13 year old. And I would say to my dad, well, okay, look, let’s compromise. I’ll read one newspaper, because after all, the news is the news. And the four newspapers we got covered the whole political spectrum, from left to right. And he said to me, the news may be the news, but the interpretation of the news is very different. And unless you can look at the same issue from different perspectives, you’ll miss something. Then I came five years later to do my undergraduate degree here at Cambridge University. And the first year of economics you were taught four different schools of thought. We were taught the traditional neoclassical economics as taught all over the world. We were taught Marxist economics, we are told Keynesian economics and what called near Ricardian economics. And again, the message I came out with So is be willing to have different approaches in your toolset and be willing to ask the question from different perspectives. And that that is what has served me well, is that the ability to ask the question, so for this, I’ll give you the most recent example, the big controversy about whether inflation was transitory or not. If you had been trained simply, as a neoclassical economist, you would have said, it is transitory. If, however, you’ve been trained to look at a whole range of data, you’ve been trained to listen to earnings call, and you have a much more open mind where you have much more cognitive diversity, then you start putting together a story that tells you the end of the day, the economic models are wrong. There’s a structural change going on, that’s not being captured.

Eric Chemi 5:55
This is exactly what I was curious about. Is that difference in thought process? Because we’ve had so many conversations here on this channel and across the economic media spectrum about are we in a recession or not, right? Are we in in a strong environment, right? When you look at certain data points, it looks like hey, we’re great markets at all time highs market sees bullishness ahead, let’s say focusing on the US, for example, but you could look at broadly the world. But then there’s a lot of other data points where you think, Hmm, this doesn’t add up, right? This doesn’t make sense. And and we know what those are. But it’s hard to have conversations with people because some people are so firmly in the bearish camp, right? hard landing, we’re going to drop 40%, this is all falling apart, just just wait for everyone to get fired. And then you see it coming. And then this other camp, which is no everything is fine. The Fed has this under control. How do you how do you deal with both sides of that issue? And what are you looking at to help you come up with an independent analysis of where you think the right answer is?

Mohamed El-Erian 6:55
So I think the most important issue is to realize that there’s so many structural changes going on, that you should not be held hostage by certain view, that you should be willing to revisit your view in light of greater information. Put it another way, if you think you’re an MIT person, so let me put it in terms of distributions. You know, most of the world things in terms of normal distribution and bell shaped distribution, right, where there’s a high likelihood of a certain outcome, the belly, and the various entails. And then that provides the foundation for view, which then provides conviction for the view, and then you become hostile to that view. The reality is, we don’t live in this world anymore. We live in a multi modal world where you can have equal probabilities have very different outcomes. And ex ante, you cannot have conviction because there is enough foundation to any one. And definitely got to be open. You know, the big lesson I learned on this was the weekend when Lehman Brothers went bankrupt.

Eric Chemi 8:01

Mohamed El-Erian 8:02
We were sitting in the PIMCO investment committee room, and we had three scenarios on the wall. And we had each voted on the likely probability of the scenarios. And I say this, because the sort of conventional history even though Bill Gross, and I have said, it’s not the case, is that PIMCO predicted the global financial crisis because our clients, the vast majority of clients made money during that period. And I say this, because here’s the reality, and I’ve repeated it over and over again, because it has a very important lesson about what you asked me, we had an 85% probability attached to Scenario A, and Scenario A was Lehman would not fail, that we would witness the repeat of Bear Stearns six months earlier. Six months earlier, bestline had run into trouble. JP Morgan came in JP Morgan took over, there was no counterparty risk. And we knew that Lehman was in discussion with two banks. And we assumed that we would see a repeat of what happened six months after we gave them an 85% probability 12% was Lehman fails. But Lehman fails in an orderly fashion. Because no regulator in the right mind would let Lehman fail in a disorderly fashion, because that would paralyze the payments and settlement system. And that would bring the global economy to a halt. 3% scenario C you had was the was Lehman failed in a disorderly happened, what fashion that’s what actually happened. So this notion that we predicted, was completely wrong, but we realized that we may be wrong and for each scenario we had who would do what, when? So the minute at about 11 o’clock at night, on that Sunday, we realize it was scenario C, we knew which lawyer was going to go and deliver the notice of failure. So can we can we establish all our swap positions? We know we knew who would be contacting clients we. And first often even if you’re wrong about the world first mover advantage, once you realize you’re wrong, the course correction can help tremendously. So whenever people say I am convinced, just like last year, actually, 14 months ago, Bloomberg ran the headline 100% probability the US falls into recession in 2023. And I remember saying, that’s absolutely absurd. No one has 100% probability. And by the way, there’s no reason for us to fall into recession in 2023. So I always warn people don’t have too much conviction. When the world is so fluid. And we right now we live in a very fluid world.

Eric Chemi 10:52
I love that. I love that story. Only 3% predicted the right outcome. But then it was that first mover advantage that actually that mattered more. And it mattered that you that you even offered an option C,

Mohamed El-Erian 11:04

Eric Chemi 11:04
Some people might have said, well, that’s not even possible. That’s not let’s just, let’s just only offer a and b Let’s not even offer an option C to vote on. So sometimes it’s about getting creative with what is the full range of possibilities, even though it seems unlikely. It it makes me wonder about right now, what do you see is those those A, B and C outcomes when you look at, let’s say 2024? In the US? Well, obviously, we saw that technical recession data in the UK, where we saw that inflation number coming in on Thursday. What what are you what’s your evolution of thinking right now,

Mohamed El-Erian 11:39
my highest probability scenario, but it’s not dominant. Okay, I want to stress it’s not the dominant probability, it’s a higher is the highest probability of the three scenarios I have is that US growth slows down, but doesn’t go into recession. Inflation gets stuck at around two and a half to 3%. The Fed tolerate that higher inflation for now, it continues promising us 2% Down the road, but realizes that 2% is not the right target. But it can’t change it. Because of credibility issues. It just lets inflation went slightly higher. That doesn’t cause any financial system issues. Because that inflation is stable. And we get a slightly different soft landing than what is now in the marketplace. The marketplace has a soft landing with inflation near two with growth higher than where I am. But basically, we get a soft landing, we don’t crash, I think that’s the highest probability. It’s a bumpy landing. The second highest probability is that the Fed makes another policy mistakes. And the Fed ends up over tightening, because it’s pursuing an inflation target. That is not the right one. And why isn’t it the right one, because for the next few years, we’re going to live in a world of insufficient supply, very different from when we came out of the global financial crisis, when we were living in a world of insufficient demand, we had a balance sheet issue. Now we live in a world of insufficient supply, the supply chains are being reconfigured, partly for geopolitical reasons, partly because companies want more resilience. We are going through a massive energy transition. And the labor market is being challenged in terms of labor force participation, not going up fast enough. So when you look at that, it suggests that if we were to come up with an inflation target today, it would be higher than the 2%. So Scenario B for me is that the Fed doesn’t realize this gets to where we went inflation’s get stuck. And then all of it ends up over tightening by not reducing interest rates fast enough. And then we end up in a recession. And then we end up with some amount of instability. And then the third scenario, which has the lowest probability, but you have to take it seriously because of the consequences is that we can’t handle the stock of activities that were funded at artificially low interest rates and now have to be refinanced. So the commercial real estate problem becomes much broader than a commercial real estate problem. And then that starts contaminating the financial system. And then you get the tail wagging the dog. You got the financial system having issues. So if I look at these three, the first one probably has a probability of 55% 60% So not massive conviction. The second one around 30%. And the third one, about 10%. So call it 60/30/10.

Eric Chemi 15:12
I like the way you break that down. And I think about in your scenario be that policy mistake idea. And it goes back to the Lehman example, you can maybe say, Hey, that was a mistake, right? How do so many smart people who have been trained their whole lives and their careers to be in these positions to make these decisions? How do they end up making these mistakes? Who is it that is, you know, pounding the table? And this is how we’re going to do it. And it just turns out, they’re dead wrong. Are they? Are they just not? Is it a groupthink issue? Are they not looking at the right data? Do they get committed to some past statement that they can’t get off of like the Lehman was? Well, okay, we’re bear, we took a lot of heat for bear. So we’re going to do the opposite. Why? Why do we have mistakes from so many smart people?

Mohamed El-Erian 15:55
So let’s take the example of the Fed. Okay. And let me just start with with the the statement that people think I’m too hard on the Fed.

Eric Chemi 16:05
Okay, but I didn’t say it.

Mohamed El-Erian 16:11
Since 2021, they’ve made six policy mistakes. Six, mistake number one most visible,

Eric Chemi 16:18
I’ll cut you off right there. You know, as a Jets fan, if you make six mistakes as a coach, you get fired as a GM you get fired. You don’t keep these jobs. When there’s when there’s actual capitalism involved in in someone paying you a salary. That’s a lot of money, you get fired yet in these government jobs. They they seem to survive, but I’ll but continue on.

Mohamed El-Erian 16:34
Right. I’ll come back to that, because that relates to the sixth mistake. Okay. Mistake number one was analysis, they got seduced by the notion that inflation was transitory. They got stuck in that mindset. They ignored mounting evidence, and they last us a good six to seven months. And that’s critical at the beginning of an inflation process. Mistake number two was what did they do once they recognized that inflation wasn’t transitory, if you remember, it is towards the end of November 2021. That chair Powell went in front of Congress and to use his word we tired, the word, the word transitory from his recovery by March. So four plus months later, interest rates was still zero. And we still had QE. So the exit from a

Eric Chemi 17:27
On top of COVID stimulus on top of this?

Mohamed El-Erian 17:30
Yeah, absolutely. Absolutely. So we lost another four plus months where we went the economy at a much higher level of liquidity that we should have. So that was mistake number two. Mistake number three was communication. There’s been studies shown that this that that press conferences under this fed caused a tremendous amount of market volatility. And in most cases, whatever conclusion the market has reached, after reading the statement, two hours later, after the press conference, it’s somewhere else completely. And then we get the minutes a few weeks later, and then, and then people have to figure out what Well, that’s not what was said in the press conference. So communication hasn’t been consistent. Mistake number four forecasts. forecasts have been consistently wrong. In the same direction, there has been very little learning from from that process. Then you have what you talk about accountability. To this day, the Fed is the only central bank have the three major central banks, the Bank of England, the ECB and the Fed, not to have explain why it got its inflation call wrong. Unlike the Bank of England, it hasn’t hired an outsider in order to look at his forecasting, and try to help to understand why it’s forecasting had the same mistake over and over and over again. So it the Fed hasn’t held itself accountable. And it hasn’t been held accountable by the political system. And when you are not held accountable, I go back to exactly what you said in the beginning. You don’t correct it. And the last one is, has to do with expertise. Trap Powell is not an economist. At a time when the economic situation is changing. You have to have a gut reaction, you cannot be excessively data dependent. You have to look forward and

Eric Chemi 19:36
you cannot be excessively data dependent. That’s interesting. That’s interesting.


Mohamed El-Erian 19:39
Because think about it, your tools act with a lag. The lag is somewhere between six to 18 months, your data is backward looking. So if you are adjusting your tools that act six to 18 months forward with data that’s at least one month old, sometimes two months old. It is like driving a car are looking at the rearview mirror, right?

Eric Chemi 20:02

Mohamed El-Erian 20:02
It tells you nothing about the road going forward. So, and it when you’re not an economist, you don’t have the courage to take a view. So you anchor yourself on data and you become data dependent. And you repeat that. They don’t have someone like Kevin Walsh, for example, who understands the functioning of financial markets, and brings that in Bill Dudley when he was their experience in markets. So they lack the cognitive diversity you need in order to navigate these issues. So think about it. Analysis, action, forecasts, accountability, communication, and cognitive diversity. You know, that is a real issue. And it doesn’t surprise me that it has taken us so long. To get out of the mistake that was made, we didn’t need to be in the situation, we are very, very lucky that this economy is so resilient, as entrepreneurial, that we’ve been able to, so the agility needed. But the inflation we went through with a peak rate of 9%, ate away at purchasing power, ate away at social cohesion, resulted in long lines at food banks, and hit the poor particularly hard.

Eric Chemi 21:25
There’s so much there. I’m looking at the clock, like, oh, we might need to go for two hours to get into each of the mistakes. Because when you say cognitive, cognitive diversity, then the question is, well, who put all these people in charge? Is there somebody else that made the mistake that put them all in? I think about your four newspaper example, I think about the four big economic schools of thought, are we stuck in a situation here where everybody here has been chosen in a certain template, a certain format, they all think the same way. And so you’re getting the same kinds of outcomes? And is that someone else’s fault for picking all these people?

Mohamed El-Erian 21:56
So look at best practices, I mean, I mean, the good news is we have best practices. The Bank of England, for example, has to outside appointees, to the equivalent of the FOMC. So they are external members. That’s what they call the external members. They bring expertise, they bring a different viewpoint. And they are in the equivalent of the FOMC, which is called the MPC. The Euro zone has it by construct, because they have countries that are very different in the way they look at the world. Think of Germany versus Italy, think of, you know, fundamentally different. So you could fix this, the FOMC could have two external members that come in, and that would force a cert and it’s okay for the external members to disagree with the chair. The problem with the Fed is that no one wants to disagree with the chair. Look at the Bank of England, the last vote was two people voting for hiking, six people voting to stay where they all want person voting to cut. When have we had a range of views expressed in the FOMC? We haven’t, because at the end of the day, the the pressure on you to simply align with what the chair says is absolutely enormous. You don’t have independence, the way you would have if you had external members. So we can fix this. This is all fixable. There’s nothing inherently broken, it can be fixed.

Eric Chemi 23:31
who fixes it who could fix it? Congress on the system?

Mohamed El-Erian 23:35
Congress has to fix it.

Eric Chemi 23:37
Congress, though, is an organization to get things right, though, right.

Mohamed El-Erian 23:41
So what Congress should do, and this happens in other countries is that sort of recognize that they don’t have the expertise to hold the Fed accountable. So they should establish a committee which has outside experts as well. And that committee is then delegated the power. So when chair Powell goes up to Congress twice a year, he’s actually being questioned by people who understand monetary policy will understand economics, which is if you know, as I love our lawmakers, but when you actually look at them, when in these hearings, you realize they’re not asking any relevant questions at all.

Speaker 1 24:26

Eric Chemi 24:26
Right, they make Powell look smart, because their questions are so bad. So then relative to the two, it looks like, okay, we should trust power more than we should trust Congress. But I see your point. So it was like you need a middleman, you need that consultant in the middle.

Mohamed El-Erian 24:38

Eric Chemi 24:39
are we doomed to continue to have these failures because of the structure because of the way people think? And and you’ve seen a lot of countries, you know, in the emerging markets where maybe they seem fine, and then all of a sudden everything imploded is the US at risk of something like this of a Lehman type of scenario of a transitory mistake if, if all these can auditions are, let’s say, currently permanent, right for these mistakes that people making them. Does that maybe increase that 30% likelihood of a mistake? Because they have a track record of mistakes, right? How should a normal investor, how well should they sleep at night when they when they hear you put these red flags out?

Mohamed El-Erian 25:17
So you’re referred to this book that that I co authored with? Michael Spence, Gordon Brown and weird little. Let me explain. Michael Gordon, and I got together during lockdown on Zoom every week. And you know, we knew each other beforehand, we thought it’d be interesting to have a zoom call. My expense, brought incredible economic expertise, Gordon bought incredible policy expertise. And I was the one who circulated the Zoom link. So every week, and I must tell you for and then we continued after lockdown, we continued, and for the first year, it was the most depressing closable

Eric Chemi 26:07
depressing call.

Mohamed El-Erian 26:08
oh, my God, it was so depressing. We all have kids. We’re all worried about the future, we would see that that the way people were managing economies during lockdown, they never thought, how would we emerge from lockdown, there was an assumption that an economy is like a light switch, you turn it off, you turn it back on, the light comes on, there was no recognition that containers would be in the wrong place that you simply can’t restart. Then when the when the vaccine was discovered, we realized how badly distributed there was going to be, and how we would end up importing new very variants from India from South Africa. So we went through problem after problem. And then there was this one moment. I remember clearly, when someone said, You know what, if you look at everything that depressed us, there’s three common elements. And that was an O what moment and said, the first thing is that we’ve been stuck in this permit crisis world, including starting with a global financial crisis. And we’ve lost the ability to grow, we can’t grow in an inclusive manner, we can’t go on a gerbil manner. And we cannot go in a manner that respects our planet. And while growth isn’t everything, like any businessman knows, if you don’t have growth, life becomes a lot more difficult. Second, we’ve repeated the same policy mistakes over and over again. Coming out of the global financial crisis, we assume that we’re going to go straight back to what was happening beforehand, we never stopped and thought is the world going to look different? Coming out of COVID, we never recognize that there’ll be all these supply chain disruptions till it was too late. We tend to always want to go back to our comfort zone and not ask the difficult questions. Someone says inflation. You mean it’s dismissive, it’s transitory that that was a behavioral problem that we didn’t guard against the behavioral trap of always being anchored by the past. And then the third element that’s common, is the lack of global policy coordination. A lot of the problems are common problems among countries. And that’s when the whole discussion turned positive. And we got all excited that if you look forward with what’s happening in AI, with what’s happening in life sciences, and what’s happening in the energy transition, we have this golden opportunity to promote drivers of growth of tomorrow, which is necessary for all sorts of reasons. And you and I have kids, and we should worry about the world, we’re going to leave them if we’re not able to grow, we learned we’ve learned a lot from should have learned a lot of our policy mistakes is actually good practices around the world that can be adopted. And thirdly, hopefully, and this is the hardest, we can get better policy coordination. So I say this, because there are common problems to the issue that common causes to the issues we’ve been facing over and over again. So I go back as an investor, you’ve got to ask the question, how much of the following three things so I have in my investment approach? One is resilience? Can I afford my mistakes? And a world that’s really fluid? I’m likely to make a mistake. But can I afford it? Can I jump back up quickly? And that has a lot to do with risk management with all sorts of things. But you have to stress resilience. The second is agility. Can I move quickly enough? When I see things starting to go one way or the other? And the third one is optionality. Do I build enough intellectual optionality, enough portfolio optionality to be able to change my mind. Because I think the world is evolving in a way that can go either this way or this way. We can have peace in the Middle East, or we can have an escalation that rise, all crisis up to 100 150. We can have more problems in China in the US, that breaks the multilateral system, tariffs, sanctions, everything else, or we can have coexistence. These are very different things. These are very binary outcomes. So you’ve got to have this combination of resilience, optionality and agility when you are managing portfolios when you’re managing a household. And when you’re managing an economy. You know, it’s you know, you and Kelly, amazing, your five kids, you have to have all five, you have to have resilience, because it’s exhausting. You have to have an open mind, as to you know, is it get sick as a kid not sick, etc. And then you have to have agility, you have to be able to go to CVS quickly, to get whatever you need

And equally Eric to stress, this is not, you know, you shouldn’t put 100% in cash either. Right. That’s a mistake as well.

Eric Chemi 32:06
Well, that’s 100% a mistake. Yeah, I guess because I think of it all the negatives that people have said over the last couple of years, if you didn’t invest in equities, because you were so scared. s&p 5000 You missed a massive move just in the last six months, it’s up 20%. So there’s, it’s hard to it’s hard to balance the negatives that we know the policy mistakes that we know and yet, boom 20% In six months, if you sat on the sidelines, you didn’t get it?

Mohamed El-Erian 32:31
Correct. Absolutely. Right.

Eric Chemi 32:33
What what do you think, you know, before we go in the next couple of minutes, a lot of people that, you know, we hear from they’re really concerned about this, this federal debt, this deficit, this trillions of dollars, it keeps on growing? There almost seems to be no way of turning it around. And they think maybe not in your lifetime in mind. But maybe for my kids, do we look like an emerging market? Do they have to default to they have to massively hyper inflate? What do you see is you you’ve worked with countries where this became an actual problem, and it really affected people’s lives.

But I, but I , it’s funny as you’re talking about it, all these these layers that you need and thinking about it both from a let’s a government policy point of view, but also a household policy point of view. When you think about how much should you be invested in equities versus bonds versus having cash versus real estate versus commodities. And I liked the way you said it, you need to give yourself the the room to make a mistake. I think that was a great way of summarizing it, you’re gonna make mistakes, but you got to have room for making mistakes. So you don’t put 100% of your money into one investment. Right? Okay, I’m going all in on gold, or crypto or bonds or equities. Any one of them could could implode on you. But if but if you’re thinking through, okay, if it goes down 50%, or I’ve got this thing to move, or, you know, this income stream or whatever. So I like the way you you structure that because it that applies to both for our viewers and for for policymakers.

Mohamed El-Erian 33:03
Yeah, we’re very far away from becoming an emerging market. And there’s two reasons for that. One is ultimately, a lot of these issues solve in relative terms, not in absolute terms. And we we are much better than many other parts of the world. You know, the the image we used to use at PIMCO. Because it’s very tempting to say, oh, no, the US has high debt or invest there. But relative to other countries, actually, the US will attract money, because it’s at least growing. We used to call it the cleanest, dirty shirt. And the image is you are on a business trip. You just want carry on, you’ve packed for that business trip. Exactly. And then the snowstorm hits, and you’re stuck one extra day, you can’t get anything washed, what are you going to do, you gotta go and weigh your cleanest dirty shirt. So the US will win the relative game for a very long time. An emerging market doesn’t win the relative game. So that’s the first reason why we’re not imagining it. The other reason is, there’s four ways to deal with excessive debt, one good way and three bad ways. And we have a chance a good way we in fact, we are best placed among most economies, the best way is to grow out of your debt. You know, you have too much too high a balance on your credit card. If you can get a second job, you can maintain your standard of living and pay off your debt. The US has an ability to grow that other countries do not. You know, we’re talking on a day when the UK entered into a technical recession, Japan entered into technical recession. Germany is basically in a recession. And for the two quarters that judged the technical recession for other countries. We grew almost by 5% and then by 3.3%. So we have the ability to grow Out of our debt issues. So I don’t think emerging, I don’t think we’ll ever become an EM an emerging market. But I do think that if we’re not careful, the stock of debt is going to start reducing our ability to grow. It’s going to be a heavy, heavy weight on our ability to grow. So we need we need more fiscal discipline. Absolutely. We need more fiscal discipline.

Eric Chemi 35:26
Do you worry that higher taxes though, and let’s say higher policy rates, those are going to kill the ability to grow, kill entrepreneurial spirit and eliminate one of those two levers that you talk about?

Mohamed El-Erian 35:35
I do. I do. But I don’t think we’re there yet. I think we have enough time to adjust without a massive increase in taxes. And we have time. But the trouble is, if if we wake up as parents, you know, I often apologize to my daughters. I say, I’m really sorry, let me tell you, and I’m much older than you are. Let me tell you what my generation is leaving you with an economy that doesn’t grow inclusively enough. So massive inequality. We haven’t respected our planet. And we live in you with a lot of debt. But the good news,

Eric Chemi 36:14
Great job, great job.

Mohamed El-Erian 36:18
No wonder I’m in New York Jets supporter. Okay. So but that’s the bad news. The good news is you have really powerful tools, which we never had. So if you deploy just those tools, you can actually deal with the big stock of problems we’re leaving.

Eric Chemi 36:36
It reminds you of somebody that’s comes in, knocks down your house, it says, but I’ve got the best hammers you’ve ever seen. The house doesn’t work. But these are the best tools ever go for it. I’m out but you can figure it out. And then And then lastly, before we go because that, you know, our wealthy owner, Steven Feldman is also a Jets fan. So you to have that in common. What’s your analysis of the year you talked about multimodal outcomes? No one predicted Aaron Rodgers would play four plays and be out for the season. That’s an example of like the 3%. Lehman’s situation you got you got to be prepared for that. They didn’t have the backup QB, the season imploded. What do you what do you forecast, you know, this upcoming season.

Mohamed El-Erian 37:11
So I think there’s a lot of good in the jets that there really is a lot of good and the defense is incredible. Now there are our running backs are incredible. We, we just need a stable, good quarterback. And we haven’t been able to I was actually, you know, I got criticized for this. When when there was lots of rumors about Aaron Rodgers coming to the Jets. I said, That’s a terrible idea. Terrible idea. He’s going to play a couple of years, we’re going to reorient the whole team. And then after a couple of years, he will retire rightly so. And then we will be left with a system that no longer works. And I was taken aside by by someone in the justice organization and said you don’t understand we really need to get to a Super Bowl. Right? So we went for the short term solution. But I never imagined would be four snaps. And I really feel sorry for the guy. I mean, it was awful. I was out there. I remember when that game, it was horrible, like a nightmare.

Eric Chemi 38:16
And yet they won that game, surprisingly, somehow, you must be making a lot of friends in between your comments about the Fed your comments about jets management. Did you end on this? Do you? Do you find it awkward where you have to you have to say your beliefs publicly about all these different issues and then know that there’s someone on the other side of that, that maybe is your colleague or a mutual friend or a former friend? How do you handle that?

Mohamed El-Erian 38:36
So people know that that I you know, I don’t have any political aspiration. I don’t have any career aspirations. Right that that, you know, they know that I think of myself as an apolitical technocrat who will share with share ideas with a view to getting to better outcomes. Right. And, you know, I say the same thing in closed meetings, I don’t hesitate. I say, I’ll tell you what I think and just be sure I don’t want to drop. Okay, I don’t want to I mean, I’m just telling you, because I want you to succeed. Because we’re parents, I mean, ultimately, we all are in the same boat together. And I feel really strongly about this.

Eric Chemi 39:22
Mohamed, I appreciate the time. Thank you so much for joining me. And you know, good luck with everything and we’ll talk to you soon.

Mohamed El-Erian 39:28
Thank you so much. Thanks for having me.

Eric Chemi 39:30
Thank you so much to my guest Mohamed El Erian for sharing his thoughts here on Wealthion of course, for more information go to You can see all of our episodes there you can connect with Anthony Scaramucci show put your questions in for that you can also connect with our financial advisors that we’ve got relationships with if you’re looking to figure out what to do with your investments, your family’s finances your future. There’s no obligation there’s no cost for that. That’s all at And of course if you liked this episode, please like it, share it comment subscribe to the channel let other people know that’s how we get more of this content out there for all of you to enjoy, watch, listen and learn. Thanks so much for watching this episode. I’m Eric Chemi. We’ll see you next time.


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