Is there a historical context to the current situation that is helping guide PIMCO’s outlook?
El-Erian: There is a context for the current process which, in simple terms, involves a forced sequential recapitalization of vulnerable sectors in the global economy. In 1997-2001, it was the turn of the emerging economies to be recapitalized after the Asian and Russian crises; the corporate sector followed in 2002-03 in reaction to the Enron and WorldCom debacles. Today, it is the turn of the financial sector. And over the next few years, the consumer will get recapitalized. So we see this as a sequential recapitalization process where various segments that got offside – because of a lack of discipline, excessive leverage or what was happening in the rest of the world – will get back onside. For PIMCO, the question is not whether these recapitalizations happen, but whether they happen in an orderly or disorderly fashion. The fact that these recapitalizations are sequential is good news for the global economy, because if they were simultaneous, global growth could not be sustained. Q:
