Pimco boss El-Erian pleas with DC to avoid default
ANY DEFAULT by the US government would have “catastrophic” legal consequences, Pimco chief executive Mohamed El-Erian said yesterday, urging lawmakers to reach an agreement over the $14.3 trillion (£8.9 trillion) debt ceiling.
“We would be in the land of the unpredictable,” El-Erian said, if even a short-term “technical” default was allowed to happen.
Such an outcome would set off a series of contractual triggers across financial markets – this “could be catastrophic”, El-Erian told a CNN news programme last night.
The US government could be forced to start defaulting on its mammoth debts in early August, if politicians fail to come to an agreement.
Republicans and Democrats have failed to agree on how austerity measures should be implemented.
“They’re all coming out of the woodwork now, pretending to care about the deficit,” commented Carl Neill, analyst at Risk Management Incorporated in Chicago yesterday. “But really it’s just political theatre.”
Yet El-Erian told both sides that even a temporary reform package – “kicking the can down the road” – would be preferable to any default.