Pimco's Mohamed El-Erian appeared on Bloomberg Television's 'InBusiness' with Margaret Brennan Thursday to discuss the crisis in Japan and other issues.
On Tuesday's Fed statement:
'What struck us when we were discussing in our investment committee is how can you have a statement about the U.S. outlook on a Tuesday that follows a major catastrophe a few days earlier in the third largest economy in the world. We thought there were two interpretations. What we hope is the correct interpretation or motive for the Fed is that the Fed simply did not have enough information. The material for its meeting was prepared ahead of the earthquake and the tsunami. There was not enough time to fully understand the impact on the U.S. economy. That is one interpretation and I hope it is the right one. The second interpretation is something that has been said by certain economists, which is that the impact of the Japanese disasters on the global economy will be transitory in the sense that they will be temporary and reversible. Our view is that it is too early to say that. We hope that is the case, but it is too early to say that. We should not simply assume it will have a transitory effect on the global economy. We should be analyzing in depth because this is a major development that has economic implications in addition to the horrible human suffering'.
On comparisons to the Kobe earthquake in 1995:
'They are taking short cuts. They go back to 1995, and they say in Kobe, what happened? GDP fell, but then you had a massive reconstruction program, and therefore GDP bounced back and the impact was transitory. That may well be true, but it is too early to conclude that because there are three fundamental differences between 1995 and today. First, this is a much bigger event. It's a bigger event because it's an earthquake and a tsunami that has impacted much more of the Japanese economy. The second element that makes it different is that Japan is in a different place in terms of its debt to GDP, and it is not clear what mix of funding will you have. Will it all be done through borrowing, or will the private sector repatriate the investments held outside. Thirdly, it comes on top of another supply shock, which is in the Middle East, which is still ongoing. There is major uncertainty, not only about the Middle East, but also about Japan because of the nuclear element. We are cautioning against a simple extrapolation from 1995 because this is different'.
On if he's seeing repatriation of funds by Japanese investors:
'We have not yet. It is too early. The immediate effect is to worry about the human dimentions and this is a very, very sad situation. We anticipate there will be a mix of both borrowing by the government, including monetization, and repatriation, and that is what is going to be paying for a massive reconstruction program'.
On if he's seeing panic among clients:
'We are not. We are seeing many, many requests for information and analysis, and people are still trying to figure out what it means for them personally. I would not underestimate, especially for our Japanese colleagues, the personal element. People are still struggling to fully understand what happened. It is so enormous. The amount of suffering that the Japanese society is going through is very large. There is a period of shock, if you like, until people fully understand the enormity of what happened'.
El-Erian on Pimco employees in Japan:
'We are thankful that all of our employees and their families are well. We triggered on that Friday a business continuity plan which seeks to meet our clients' needs while also safeguarding the well-being and the health of our colleagues and their families. Some colleagues have been relocated to other offices in Asia. We have three other offices in Asia, we have relocated there. Others are essential personnel and are still in Tokyo, and a third group is working from outside of Tokyo. We continue to meet our clients' needs, while also safeguarding the well-being of our colleagues and their families'.
Source - Bloomberg TV