Pimco’s El-Erian & Gene Sperling Talk Jobs

Pimco’s Mohamed El-Erian and Gene Sperling, director of the National Economic Council, spoke to Bloomberg Television’s Betty Liu this morning about the unemployment report and the state of the U.S. economy.

El-Erian said that the unemployment report is “grim and scary” and that “hopefully it will ring alarm bells in Washington.”

On President Obama’s jobs speech next Thursday, Sperling said that tax and spending initiatives will be proposed that would have a “significant” impact on growth and creating  jobs. Excerpts from the interview can be found below, courtesy of Bloomberg Television.

El-Erian on today’s employment report:

It is grim and scary. If you look at the three month average, we are now down to 35,000. That is too low for job creation and too low for regaining confidence. It is not just levels where we are here at Pimco. It’s the composition of unemployment and it is the duration of unemployment . Whatever way you look at it, this is a worrisome report. Hopefully, it will ring alarm bells in Washington.

El-Erian on government intervention to manage the markets:

“It is not just managing the market. Let’s look at the U.S. You have an unemployment crisis. That means we that means we need crisis management. Crisis management has to be holistic in nature. We have to lift the structural impediments facing the unemployed. We cannot just rely on the Fed. Its policies are less and less effective. You go to Europe. They have a crisis, too. We need holistic approaches rather than these ad hoc tactical ones.”

“You need a coordinated approach across agencies, not just the Fed but other Washington agencies. Secondly, you need coordination around the world because if we do not get China, Europe, and the U.S. all playing out of the same music sheet, we are not going to get things better. You also need cooperation of the politicians. The politicians have to get on board.”

Sperling on what President Obama hopes to accomplish next week on jobs:

“There is no question that we need stronger job growth and stronger growth overall. That is why the president called for an urgent speech to Congress to make very clear that we have to put the economy and workers ahead of politics and partisanship. His speech will lay out significant details a meaningful and economically significant program that, if passed, would have a significant impact on both job growth and overall growth over the next 16 months.”

Sperling on what President Obama will lay out that will be different than we’ve heard in the past:

“We are looking at all different options…It will focus on tax cuts that will help workers as well as small businesses. It will focus on rebuilding America and putting people to work. There will be a significant strategy targeted at those who have been unemployed for far too long. These are some of the things we have to do to get the economy going, to get the recovery taking greater hold, getting job growth going. This is a part of a larger vision about how we have to come back from what obviously was the worst financial recession since the Great Depression. Getting back to the long term competition that we need for our economic growth.”

Sperling on how close we are to the unemployment crisis being embedded in the system:

“When you inherit the type of financial recession that this president did, there is no question that in almost every advanced country, it has taken longer to come back. It is a deeper hole. You have a layover of the financial recession. You have to take very serious action. I think we should all worry about having too many of our people out of work for too long. That is why when the president puts forth his proposal, there will be significant measures dealing with those who have been unemployed for six months or longer. I think that has to be a very important part of any comprehensive strategy. It is so important that people understand the imperative that we have to do something on job growth now and we have to do something more urgently, and we cannot allow the normal politics and partisanship to stand in the way of what is a clear need for a real boost to job growth in the economy right now.”

El-Erian on what Washington needs to do to help American business:

“Washington needs to understand that if it does not move decisively in a comprehensive manner, things will get much worse. Why? Because the dynamics of the economy and markets are pushing toward further weakening. Also, Europe is very far away from solving its issues. We need a comprehensive approach on housing, labor markets, credit, infrastructure, and on public finances. Unless we see a comprehensive approach, it will be too little, too late.”

El-Erian on whether the Fed has the right policy instruments to aid the economy:

“People tend to focus on whether the Fed is willing to do something and able to do something. If the Fed is willing and able, is the Fed effective? Do they have the right policy instruments? Judged on that parameter, the Fed does not have the right policy instruments. The only thing the Fed can do is provide another bridge for the other agencies. At the end of the day, the Fed is a bridge and if the other agencies don’t react, it’s a bridge to nowhere.”

El-Erian on whether QE3 would do more damage than good:

“I think even Bernanke said there are benefits, costs, and risks, and the balance between the benefits and the cost and risk has changed in an adverse manner. There is a risk that if the Fed goes alone, we commodity prices going up again, that weakens the economy, we see the Fed coming under more attack from the political wing, that will weaken the credibility of the Fed. At the end of the day, we will not be solving anything. We will just be undermining the economy and a critical institution for the wellbeing of America.”

El-Erian on the single most important thing Washington should do:

“Housing is critical. I wouldn’t put it as single, but I would encourage the Fed and Washington to be comprehensive to not try to focus on just one issue. So far, we have gone in an ad hoc fashion. It is the same thing in Europe as well. You have news out of Greece and the ECB is unable to control the Italian yield. All that is adding to the concerns out there.”

El-Erian on whether the U.S. is under more pressure of another recession after today’s unemployment report:

“Yes, I had a probability between one-third and one-half. I think this number and the compositional elements will tend to increase those numbers. The downside risk is increasing. Now, there is going to be even more attention on what President Obama will say on Thursday. It’s a critical speech.”

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