Pimco Chief Exec El-Erian Warns US On "Road To Deflation"
TOKYO (Dow Jones)--The head of one of the world's largest bond funds said Thursday that the U.S. faces a significant risk of falling into deflation, and that Japan's struggle with damaging price falls is becoming increasingly difficult--trends that are constraining policymakers in both countries. "On the road to deflation, which is what the United States is on today ... policy becomes less effective," said Mohamed El-Erian, chief executive of Pacific Investment Management Co.
The only reason Japan did not fall into a deflationary depression was because they had the highest savings rate in the world and because their major export nations (USA, Europe, UK & China) were growing strongly during most of the 1990s - right up until 2007. That allowed Japan to maintain economic growth and employment via the manufacturing of export goods. But those days are coming to an end because the big difference between Japan's era of deflation and the global one we are falling into now is just that - this time it's global (see Economics thread for more on the subject).
