Where is the US economy headed?

In an interview this week, he insisted that regional banks and local governments can no longer stomp their feet and claim they are immune from danger because they did not speculate on high-risk real-estate loans or structured finance: Collateral effects are going to crash into every institution that has ever lent a dime as excessive levels of debt are violently wrung out of the global financial system.

"I live in a world where crisis management is the norm, not the exception, and you learn a few things" El-Erian said. "You learn never to underestimate the destructive power of negative feedback loops."

L is for 'long term'

The insidious loop now has spun its way from Wall Street to the everyday lives of Americans as a financial crisis has become an economic crisis. Damaged money-center banks are lending less, leading to lower levels of production and curtailed expansion at companies. That has led to job cuts, which in turn have led to cutbacks in consumer cash flow and spending, which are feeding back into creating problems for credit card, auto and home loans made by smaller banks. Those troubles will in turn lead back to a diminished appetite to lend locally for projects with the slightest whiff of risk.

What makes El-Erian stand out among so many skeptics today is his view of the length of time these loops will need to play out. He argues that current stock and bond valuations are still so lofty, even after recent declines, that they suggest most investors believe solutions will come quickly -- creating a V-shaped recovery.

In contrast, El-Erian thinks U.S. government action has been so slow and timid that the recovery will instead drag out into the shape of an L and that it will curve upward into a U only when regulators and lawmakers worldwide are bludgeoned by losses to coordinate their approach despite dramatic regional differences in growth and indebtedness.

"Policy change in Washington, D.C., has been too little, too late," he said. "In a crisis like this, leaders have to be much bolder." He gives Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke an A-plus for effort but only a B-plus for execution and outcome, which is not good enough to effect a swift recovery.

genoves, It's obvious you have no skill in logic. Vetting does not have any relationship to the skill level of any individual; they are separate issues.

I am (not) amused that on a day where some dreadful news about labor came out, no one felt that was of any significance worthy of comment on an economics thread. More important is bashing, slashing and trashing each other, evidentally. Pathetic waste of a thread.

I am (not) amused that on a day where some dreadful news about labor came out, no one felt that was of any significance worthy of comment on an economics thread. More important is bashing, slashing and trashing each other, evidentally. Pathetic waste of a thread.

... I don't mind people laughing at my post/opinion, but "LOL" just doesn't say much to me...

All this while the bankers who received government bailout monies doesn't seem to have any problems with their $18 billion bonus from those funds last year - while they failed their fiduciary responsibilities.