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This article, which was sent to Opalesque today, was authored by PIMCO’s CEO Mohamed El-Erian and originally published in Newsweek.com on 17 January 2009 and the magazine dated 26 January 2009.
On Tuesday, President-elect Barack Obama inherits an economic calamity, and the
situation will get worse in the first few months of his presidency regardless of what he
does. How quickly it improves thereafter is not just a matter of which policies he
decides to pursue; importantly, it is also a function of how he pursues them. Investors
need to pay close attention lest they experience yet another challenging and, in some
cases, devastating year.
No one should doubt that we are still in the midst of a historic economic crisis. Having
incurred massive losses, individuals and companies around the world are, not
surprisingly, saving more—some by choice as they attempt to restore balance to their
finances and others by necessity as their credit lines are cut by beleaguered lenders.
As detailed elsewhere in this edition of NEWSWEEK, the world has entered an Age of
Thrift. Less spending by individuals will mean even lower demand, and the production
of goods and services will be cut, again.
The latest economic data vividly illustrate the self-fulfilling nature of this global
phenomenon. The numbers are horrifying, and increasingly so. There's been a violent
collapse in industrial production in Europe; the latest monthly data now show annual
contractions of 1...................... To view our full article Click here
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