Allianz's El-Erian: Financial Markets are not the Real Economy

August 16, 2019

Editors’ note: Very important interview. Key points. Mohammed El-Erian, chief economic advisor to Alliance, says the financial economy is overexposed to the world as we deglobalize. But the US real economy is, relative to finance, insulated from the rest of the world.

El-Erian makes these points at the beginning of the 7 minute clip.
1. US consumer cannot save the rest of the world
2. US consumer can insulate the US economy from the rest of the world
3. Low interest rates here are driven by ECB going negative and divergent growth in rest of world
4. Markets will be volatile as we deglobalize, but real economy is doing pretty well.

Also, the more a nations’ economy is dependent on exports, the more exposure they have to the downsides of de-globalization.

Personal addition: The Baldwin-Hawley bill, Competitive Dollar for Jobs and Prosperity Act, would give the Fed a third mandate to achieve a current account balance. It would do so through exchange rate management. A new tool provided by the bill is a variable rate Market Access Charge (MAC) as a “peak load charge” to manage excessive capital inflows that drive down our savings and drive up the dollar. El-Erian explains well the downsides of the financial spillover effects from other countries. The MAC would insulate our financial markets from the negative spillovers from divergent growth rates and negative interest rates by managing the capital inflows. 

Mohamed El-Erian, Allianz chief economic advisor, joins 'Squawk Box' to discuss what he's seeing in the economy amid market volatility.

[August 15, 2019 | CNBC]

Watch the CNBC interview here:

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