March 23rd, 2012
02:00 PM ET

El-Erian: The American recovery

Editor's Note: Mohamed El-Erian, CEO and co-CIO of PIMCO, is the author of When Markets CollideFor more from El-Erian, visit Project Syndicate or follow it on Facebook and Twitter.

By Mohamed El-Erian, Project Syndicate

The United States has gone through an arduous period of intervention and rehabilitation since the global financial crisis in 2008 sent it to the economic equivalent of the emergency room. It moved from the intensive-care unit to the recovery room and, just recently, was discharged from the hospital. The question now is whether the US economy is ready not just to walk, but also to run and sprint. The answer will powerfully influence global economic prospects.

It is easy to forget how critical things were back in the fourth quarter of 2008 and the first quarter of 2009. Having suffered what economists call a “sudden stop,” many parts of the US economy were imploding or had ceased to function – to extend the medical metaphor, even the most vital organs were threatened.

Economic activity collapsed and unemployment surged. Credit stopped flowing. Banks were on the verge of bankruptcy and nationalization. International trade was disrupted. Income and wealth inequalities worsened. And a general sense of fear and uncertainty inhibited the few healthy parts of the economy from engaging in meaningful hiring, investment, and expansion.

Parlous conditions required dramatic measures. And that is what the economy got in the form of unprecedented fiscal stimulus and unthinkable policy activism on the part of the US Federal Reserve.

As they intervened, American policymakers consulted closely with their counterparts around the world, urging them to take supportive steps. And they did, culminating in one of the most successful periods of global policy coordination in history, involving both advanced and emerging economies.

For many, the global economic summit held in London in April 2009 marks the point when the US economy turned the corner. The change was so notable that many policymakers fell into the trap of projecting a quick rebound, especially given America’s prior history of economic dynamism and resilience, only to be humbled by what has proven to be a protracted and complex process of recovery. Even today, that process highlights the scale and scope of the economy’s structural weaknesses.

Having reduced the risk of a relapse into recession, the US economy is able now to move on its own power, though gingerly. The horrific collapse in the labor market has given way to consistent monthly employment gains, albeit less than what is needed for a full recovery. Manufacturing activity has picked up, helped by a surge in exports. The housing sector seems to be finding a tentative bottom (though housing finance remains incoherent). Consumers have better access to credit. And, sensing all of this, companies are beginning to deploy the massive precautionary cash balances that they have accumulated.

With the US still by far the largest economy in the world and the anchor of the international monetary system, its well-being has huge implications everywhere. So, not surprisingly, the US recovery has helped to set a calming and constructive tone – and at a critical juncture, given that Europe is still struggling with a debt crisis on the eurozone periphery, and emerging economies are going through a cyclical slowdown.

Politics is also in play, and in a manner that significantly influences who will lead the world’s superpower after this November’s presidential and congressional elections. The economic improvements already have helped President Barack Obama’s re-election prospects, as has the continuing drama of a drawn-out, divisive, and expensive Republican primary.

The problem is that the sense of relief now can – and probably will – be taken too far. Indeed, today’s good news should not obscure some consequential structural limitations that will require prolonged therapy and caution. After all, the US economy has yet to regain its full strength, is too structurally impaired to sustain any rapid forward movement, and has not yet started to overcome the many distortive side effects of the extreme medicine that it received.

Locking in recovery implies a multi-year program of serious and coordinated reforms that fundamentally improve the way the country educates and trains its citizens, invests in infrastructure and finances other productive outlays and housing, competes in the global economy, and formulates and adheres to a rational budgetary process. Such a program will also require a recovering America to navigate several key challenges in the next few months.

For starters, the economy is not yet in a position to handle the 4-5%-of-GDP “fiscal cliff” that is approaching as all of the hard political decisions that were postponed come into view at the end of this year. The prospect of a disorderly fiscal contraction needs to give way to a more rationally designed approach that avoids undermining the fragile recovery. To accomplish that, the political class must avoid the bickering that almost sent America back into recession in 2011, and that raised major questions about the quality of the country’s economic governance.

Oil prices are not helping. Having already surged on account of Iran-related geopolitical concerns, they are altering American consumers’ behavior, weakening their confidence, aggravating the country’s payments imbalances, and further reducing policymakers’ flexibility.

And then there is Europe, which is yet to overcome decisively its debt and growth problems. Like other countries, the US must continue to strengthen internal firewalls to limit its vulnerability to what is still a complex crisis across the Atlantic.

America’s full recovery is not yet guaranteed. A mix of steadfastness, caution, and good luck is needed for that to happen. And when it does, the country will be in a better position to repay its massive hospital bill.

The views expressed in this article are solely those of Mohamed El-Erian.

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Topics: Economy • United States

soundoff (24 Responses)
  1. George Patton

    It's easy for this bozo El-Erian to brag about the "American Recovery". Now let him try to tell that to the millions of Americans who are still out of work! We're still in a depression, no matter which way you slice it!!!

    March 23, 2012 at 4:10 pm | Reply
    • shibumi

      did you actually read the article? do you also know the definitions of recession, depression in the economist terms?

      March 23, 2012 at 4:58 pm | Reply
      • Rz

        Regardless of the definitions, it usually takes the governmentists about a year or two to actually admit it. It's a darn good thing they're not in charge of budgets. Otherwise the deficit would likely be in the millions by now!

        March 23, 2012 at 7:51 pm |
      • Patrick

        Your arabic translator is giving you some wierd options.
        Insulting Americans is not the way to get them on your Islamic side.
        Go back to your imam and tell him you are too stupid to do this job.

        March 24, 2012 at 9:16 am |
      • j. von hettlingen

        Yes, George Patton was confused over the difference between recession and depression.
        Mr. El-Erian meant that America has got out of the economic coma and after having recovered, he was discharged from hospital. The patient America takes time to regain strength, but at home he can't have his peace and quiet, The wife and children are complaining about shortfalls and urge him to find a job. He's still too weak to work, but has no choice.

        March 24, 2012 at 12:55 pm |
      • Patrick

        Okay, whom are you talking about when you say "The patient America takes time to regain strength, but at home he can't have his peace and quiet, The wife and children are complaining about shortfalls and urge him to find a job. He's still too weak to work, but has no choice."
        In America, women work the same jobs as men. Therefore, when a man loses a job, women are still working and vice versa.
        In America, women do not complain about shortfalls–whatever shortfalls means. Women, most often, are working as well as the men.
        Who is "still weak" and how do you mean "he is still weak."

        March 24, 2012 at 1:45 pm |
      • j. von hettlingen

        @Patrick, the patient America is Uncle Sam.

        March 24, 2012 at 4:14 pm |
      • Patrick

        j. von hettlingen
        Reduced to saying what you think is an insult.
        Petty, childish, silly, comment that shows us you have no cahones.

        March 24, 2012 at 5:43 pm |
      • Patrick

        j. von hettlingen
        Your level of intelligence is akin to the "Four Lions", a film by Chris Morris. I highly recommend it.

        March 24, 2012 at 5:48 pm |
    • Lewis Thompson

      The writer of the article is totally out of touch with the current economic realities. Most of the new jobs being created are low wage, no benefit Junk Job" – not quality living wage jobs ! Most of the jobs being destroyed were well-paying living wage jobs. The wealth gap in this country has not been this great since the 1930's.

      March 24, 2012 at 6:01 pm | Reply
  2. Rodney

    When did the US economy get discharged from the hospital? That will happen when the US pulse registers a solid 3% positive GDP for 1 to 2 Quarters. If the the GDP is not +3% in the third quarter all the current Doctors and nurses will be turned out, no matter who is running. The US is far from terminal and more like 'roman' in it's first 2 centuries.

    March 24, 2012 at 12:45 am | Reply
    • George Patton

      Wrong, Rodney. The American economy is much like that of the Romans in it's final two centuries with excessive military spending along with a depressed economy. No matter who gets elected this Novemember, the President and Congress with eventually manage to spend this country out of existance with these useless and unnecessary foreign wars!!!

      March 24, 2012 at 9:12 am | Reply
      • Patrick

        If you live in America and you do no like it, go back to your sandpit.
        If you do not live in America, stay in your sandpit.
        Trying to sow dissent is a game for intellectuals, not you habibi, you are too stupid.

        March 24, 2012 at 9:18 am |
      • Joseph McCarthy

        How true that is, George. Yes, the Roman Empire first split in two and then the western half eventually collapsed largely because of it's weakened economy and if we don't somehow get of the right-wing fanatics on Capitol Hill, the same thing will probably happen here too one day!

        March 24, 2012 at 7:30 pm |
  3. WisdomSpeak

    Thnak you, for the well articulated stroll down memory lane. However, I read the article to hoping to gain some substantative commentary on your views regarding what is required as we move forward. Some specific policy recommendations would be most welcomed.

    March 24, 2012 at 3:43 am | Reply
  4. callinmclaughlin

    Lets see, gas prices, got lower and lower, so, most employers, were able to spend more, because of that very fact, hence, the smoke and mirrors recovery! Gas prices rise, and.....well, I think you see my point! Its not only gas prices that go up, but everything else for sale goes up as well. Face it, when you have an economy, that is based entirely on crude oil, you will always have this problem, it just gets worse and worse with each passing day, month, year. Oil, Black Gold, TEXAS, Tea!!!!!!!

    March 24, 2012 at 8:19 am | Reply


    في عراقنا المزيَّنِ بالفقر والعوز والثكالى وفقراء الطرق الذين يمسحون زجاج السيارات في برد بغداد القارس والدولة عنهم في غيبوبة، أقول في هذا المشهد المظلم يخرج الينا مجلس النواب ببدعة جديدة في الإسراف والبذخ، وهذه المرة من خلال شراء عشرين قطعة سلاح لكل نائب. أود تذكيركم سريعاً وقبل الدخول في الموضوع ان كل نائب يستلم ما يقارب 12.000.000 دينار مقطوعة عن 12 يوم عمل في كل شهر اي مليون دينار عن كل جلسة سواء عقدت ام لم تعقد كما يستلم 22.500.000 دينار لثلاثين شخصاً يحمونه علماً ان الغالب الاعم من النواب يقطنون المنطقة الدولية والتي لا يكادون يحتاجون فيها لحماية من أحد، ويعلم الجميع ان عضو المجلس يستلم كامل المبالغ المخصصة للحماية نيابة عن الحماية على اساس ان يوزعها لاحقاً.
    وفوق هذا البذخ الصلِف للمال العام الذي يجب ان يكون محلُّهُ فقيرات العراق وعجزته ومعوقوه ومعدموه قرر مجلس النواب ان يشتري لكل نائب عشرة مسدسات (من نوع CZ99 سعر القطعة في بلد المنشأ 500$ كما يظهر فيهذا الرابط وعشرة بندقيات نوع M16 سعر القطعة في بلد المنشأ 586$ كما يظهر في هذا الرابط وبعملية رياضية بسيطة سيتضح ان كل نائب سيكلف الدولة 21.720$ دولار امريكي علماً اننا احتسبنا الكلفة حسب قيمة الاسلحة في بلد المنشأ وتغاضينا عن عمليات الفساد الحتمية التي ستضاعف المبلغ وتضخمه، ومعنى هذا ان مجلس النواب سيقتني اسلحة بقيمة 7.059.000$ دولار امريكي اي ما يعادل 8.611.980.000 مليار دينار عراقي اذا اخذنا بالاعتبار ان عدد اعضاء المجلس 325 نائباً حفظهم الله ورعاهم ذخراً لنا وللفقراء والمعدمين.

    ولإنعاش الذاكرة وحسب اود التذكير ان المجلس موشِكٌ على الموافقة على شراء سيارة مصفحة لكل نائب فضلاً عما ذكرنا من قبل من اسلحة، وتود رئيسة لجنة شؤون الاعضاء والتطوير البرلماني الدكتورة حنان الفتلاوي زعيمة مقارعة الفساد ان تجري مناقشة الموضوع بكل شفافية ولكن خلف ابواب موصدة في جلسة سرية خشية الفضيحة طبعاً وليس لسرية الامر، ولو افترضنا جدلاً ان كلفة السيارة المصفحة الواحدة 50.000$ دولار امريكي فان المجلس سيقتني مجمل السيارات بمبلغ 16.250.000$ مليون دولار وهو ما يعادلمليار دينار عراقي.

    أقول لمن اراسلهم من عيون السلطة الرابعة حان دوركم الان، واقول للبرلمانيين: اذا لم تستحوا فاصنعوا ما شئتم

    March 24, 2012 at 11:18 am | Reply
  6. matt

    "America's full recovery not yet guaranteed?" That may be the most gross understatement of this millineum.

    March 25, 2012 at 12:15 am | Reply

    رسائل البريد الإلكتروني كشفت عن شغف أسماء الأسد بالتسوق(الفرنسية)
    قالت صحيفة ذي غارديان البريطانية إن أسماء الأسد كانت تنفق عشرات آلاف الدولارات على التسوق عبر الإنترنت بينما كان الرئيس السوري بشار الأسد منهمكا بتنزيل الأغاني على آي باد وتبادلها معها ومع الأصدقاء.

    وكشفت الصحيفة عن تفاصيل دقيقة تتعلق بالأسد وزوجته أسماء، وذلك بعد التمكن من اختراق بريدهما الإلكتروني الشخصي، على أيدي ناشطين معارضين، وفي حين كانت جل اهتمامات الأسد بتحميل المواد الترفيهية وإهدائها لزوجته وأصدقائه، كانت زوجته أسماء مشغولة بالتسوق عبر الإنترنت.

    وأوضحت الصحيفة أنه بينما كان الصراع يحتدم على الأراضي السورية، كانت زوجة الرئيس الأسد تنفق مئات آلاف الدولارات عبر شبكة الإنترنت لشراء البضائع، وكان الأسد يتبادل روابط لمواد ترفيهية مع أصدقائه عبر جهاز آي باد، وأنه قام بتنزيل ملفات موسيقى عبر برنامج آي تونز.
    وقالت ذي غارديان إنه بينما كانت المدن والبلدات السورية تتعرض للقصف بالمدفعية الثقيلة وراجمات الصواريخ كان الأسد يرسل لزوجته أسماء أغاني لمطربين غربيين.

    مطرب أميركي
    وأوضحت أن المدن والبلدات السورية تعرضت لقصف شديد بمدافع الهاون في الخامس من فبراير/شباط الماضي، مما أسفر عن مقتل وجرح المئات من السوريين، وأن مجلس الأمن كان يخطط لاتخاذ قرار ضد من وصفته بالدكتاتور.

    وأضافت أن بريد الأسد الإلكتروني يكشف عن أنه في اليوم التالي قام بإهداء زوجته أسماء أغاني للمطرب الأميركي بليك شيلتون، وأنه قام بإنزالها من "آي تونز"، وأن بريد الأسد لم يعكس الحالة الدموية والاضطرابات التي تشهدها البلاد.

    وقالت إنه لا يبدو أن حياة الأسد وعائلته والدائرة الضيقة المحيطة به كانت تبدو وكأنها تقود البلاد الثائرة من حولهم، موضحة أن مطلع إحدى الأغاني كان يقول "لقد كنت أمشي مكسور القلب، لقد زججت بنفسي في الفوضى، فالشخص الذي كنت أمثله في الفترة الأخيرة، ليس هو الشخص الذي أردت أن أكون".

    وأضافت الصحيفة أن الناشطين اطلعوا على عشرات الرسائل الإلكترونية الخاصة بالبريد الشخصي للأسد وزوجته أسماء، والتي تظهر كيف أن زوجة الرئيس كانت تنفق عشرات آلاف الدولارات في التسوق عبر الإنترنت.

    وقالت إن أسماء الأسد كانت توقع على مشتريات ثمينة من الأثاث المصنوع يدويا والمجوهرات والأحذية الغربية بالرمز "AAA" وأنها كانت تشتري لها ولبعض صديقاتها، وأنها كانت تعيش حياة بذخ وترف.

    وأضافت أن بعض التجار الأوروبيين لا يعرفون أن المرأة التي تتسوق من محالهم عبر الإنترت هي السيدة الأولى لسوريا، ولكن بعضهم قال إنه يعرفها أو أنه قابلها مرة أو أكثر، وأنها كانت لطيفة جدا في التعامل مع التجار.

    وأشارت الصحيفة إلى تفاصيل العديد من الرسائل الإلكترونية التي أرسلها الأسد لزوجته ولآخرين، وإلى أن الرئيس السوري بدا متأثرا بالأحداث في ظل تفاقم الأزمة في البلاد.

    فقد كشفت عن أن بعض الرسائل الإلكترونية التي أرسلها الأسد لزوجته كانت تقول "إذا كنا أقوياء معا، فنحن سنتغلب على هذا معا. أحبك".

    كما أرسل الأسد رسالة أخرى في 23 يوليو/تموز 2011 يصف فيها روبرت موردوخ بكونه يهودي وإسرائيلي وأنه شيطان.

    March 25, 2012 at 12:51 am | Reply
  8. kuai le gou

    Yes there is some US recovery, the patient is trying too sit up for the last time, sadly it maybe new jobs are are result part there-of a new world war [WW3] these thing take about 12 months plus to gear up, hence new jobs,

    This is not recovery waiit for the relapse, the World Bank is lessening US control, it will have to be moved to a neutral country a new world dollar is on its way UNITY DOLLAR good bye Euro, the USD shall be a USD only.

    The massive US [debt] must worsen so the plight of the average US person.

    March 25, 2012 at 4:21 am | Reply
  9. Mac Qurashi

    It is obvious from the majority of the posts that the article is way above the intellectual level of the readers. It is difficult for most to remember or understand the economic hole we were in. Next election will determine whether the nation desire to regain its economic high or pull all the IV tubes and paralyse it.

    March 25, 2012 at 7:38 pm | Reply
  10. cheeryble

    @Mac Qurashi
    I agree Mac many forget the quagmire you almost drowned in.
    Mr el Erian as usual brings a worthshile overview to it.
    I guess it's difficult for him but I can do it:
    The US needs nothing short of a revolution concerning Healthcare and Lobbying.
    Take the opportunity.....

    John Wickenden

    March 26, 2012 at 5:48 am | Reply
  11. cheeryble

    @Mac Qurashi
    I agree Mac many forget the quagmire you almost drowned in.
    Mr el Erian as usual brings a worthshile overview to it.
    I guess it's difficult for him but I can do it:
    The US needs nothing short of a revolution concerning Healthcare and Lobbying.
    Take the opportunity.....

    John Wickenden, Chiangmai

    March 26, 2012 at 5:49 am | Reply
  12. cheeryble

    @ myself

    "The US needs nothing short of a revolution concerning Healthcare and Lobbying"
    ......and while you're at it why does one have to be extremely rich or supported by the extremely rich to get elected in America? Looks like if you want to live the American Dream, move to Sweden, Denmark, or Finland.
    I say ban paid TV ads and let the media pay for political entertainment the same way they pay for other forms of show.
    Ah it's freedom of speech. Krap, it's freedom for only the rich to get a say. Level the playing field and get some talent in there. Same time you'll be stopping the really expensive thing....the payback.

    John Wickenden, Chiangmai

    March 26, 2012 at 9:26 am | Reply

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