Following President Barack Obama's State of the Union address earlier this week, Mohamed El-Erian, CEO and co-CIO of PIMCO, the world's largest bond fund, is cautiously optimistic that Washington will get out of the way of the economy. He outlines his reasons why with The Daily Ticker's Lauren Lyster.
- Obama Gets Real: "The president was very realistic in where the economy stands," says El-Erian. "He basically said we have overcome the crisis phase and now we have to get into the growth phase."
- The Roadmap: "[Obama] set out conditions we need in order to [grow] and they basically come down to investing in education, infrastructure, private-public partnership and also dealing with promises that unfortunately we can no longer meet as a society because the world has changed," he says. "He was very explicit on what is at stake."
- Accountability: "[Obama] made it very clear who is accountable for what. Now the hope is that Congress responds," says El-Erian. "The image I have of Congress is they go from doing nothing to doing something because they fall to brinksmanship for doing nothing."
El-Erian argues the economy has yet to achieve what he terms "escape velocity," bursting through this period of continued slow growth and high unemployment. The reason the economy has not accelerated faster is largely due to dysfunction in Washington, he says.
"We all know that our problems are less economic in nature and more political in nature," says El-Erian. "The biggest setback is that [Congress] fabricates problems."
The self-inflicted wounds he refers to in the video are the upcoming sequestration cuts, the expiration of the continuing resolution and the debt limit debate.
"It has been four years since Congress has approved a national budget and that is the most fundamental element of governance," he says. "We need to stop creating these headwinds."
When it comes to the budget and long-term deficits he suggests that a "mix of both" spending cuts and revenue hikes are necessary. Our debt load is not a problem that can be solved by a one-sided approach, he notes.
Bottom line: Americans should hold elected officials accountable in "real time."
"The hope is that there will be a national awakening to stop Congress from pressing that snooze button," he says.
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