El-Erian: Adversaries Benefit from Debt Ceiling Impasse, Don't Give World Excuse After Excuse To Derisk from US

Allianz chief economic adviser and noted economist Mohamed El-Erian reportedly said the only people who benefit from this debt ceiling saga are the adversaries of the United States.

"We are sending a very negative signal about our ability to run our economy, let alone be an anchor for the rest of the world. And the markets so far has actually dealt with it very well. There’s three big uncertainties — the debt saga, whether the Fed has got to hike, pause or skip at its next meeting, and of course, what’s happening to credit. So, I look at this market and actually I am very impressed by how stable it has been over the last month," El-Erian told CNBC.

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Tuesday's talks between the two negotiating sides on the debt limit remained inconclusive and Wall Street has begun showing signs of cracks with major indices declining over 1%. The SPDR S&P 500 ETF Trust SPY closed 1.12% lower on Tuesday while the Invesco QQQ Trust Series 1 QQQ shed 1.27%, according to Benzinga Pro.

Perception: When asked about whether the dragging debt ceiling saga would cause permanent harm to the perception of U.S. markets, El-Erian asserted the need to maintain caution.

"…people still remember that the global financial crisis originated in the U.S., people still remember that the trade tariffs that went against international law originated in the U.S. in 2017.”

He said, “People still remember that we have a banking tremor, not a few weeks ago. So, it’s starting to add up and this is important because already, certain countries are embarked on building little pipes around the dollar as the reserve currency, trying to be the lead example of that. “

“So, we have got to be careful. We must not give what the rest of the world, one excuse after the other, to try to de-risk from the U.S.”

The economist also explained why he thinks the S&P 500 seems to be fairly priced. "…I have been consistent in that view. Why? Because a lot of good things are happening in the U.S. economy – the labor market remains strong, there’s a lot of entrepreneurial activities going on, there is reason to be positive about productivity gains. So, if we can just stop shooting ourselves in the foot, there is a runway for a bumpy journey to a better destination. We just have to stop shooting ourselves in the foot," he said.

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