“There is a prospect for a robust recovery, something bigger than I think most economists are forecasting,” if the White House and Congress can reach a credible agreement to reduce the deficit by $4 trillion over 10 years, he told Bloomberg Television on Nov. 28.
El-Erian, who re-joined Pimco in 2007 after being in charge of managing Harvard University’s endowment, also sees a chance that technological breakthroughs could give the U.S. a productivity-driven boost. At the top of the list is digitalization: the conversion of pictures, sound and other information into a form computers can process.
Economic Impact
“The whole trend is having an impact on very many sectors of the economy,” he said.
The trouble is that while the potential for such pleasant surprises is bigger than before, it isn’t “meaningfully” bigger, according to El-Erian. And the downside dangers are greater, he said. Besides the fiscal cliff, they include the debt crisis in Europe, China’s challenge in overhauling its export-driven economy and the risk of continued instability in the Middle East.
Levy said the U.S. private sector is in the middle of a prolonged period of cleaning up its balance sheet after decades in which debt grew faster than income.
“We’ve been at this for five years,” he said. “If we’re lucky, it might take a tiny bit less than a decade.” He added he’d be surprised if the U.S. is able to avoid a recession in the next few years.
More Progress
America, though, has made more progress than Europe and Japan in dealing with its debts, Levy said.
“The U.S. will do generally better in this rocky period than much of the rest of the world, because the risks are higher and the problems are bigger in many places overseas,” the 57- year-old economist said. That includes China, where new leaders face decisions on how -- and whether -- to curb state enterprises, boost access to credit for private companies and raise consumption.