The economic crisis in Europe represents a fundamental shift in the balance of power between the rich world and the developing world, according to Mohamed El-Erian, one of the most powerful figures in international finance. He says rich countries, including the U.S., will grow more slowly in the future. And he calls that state of affairs "the new normal." Planet Money's Adam Davidson spends time with El-Erian as he studies markets to figure out the grand movement of financial history.
ROBERT SIEGEL, host:
From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.
MICHELE NORRIS, host:
And I'm Michele Norris.
Mohamed El-Erian is probably one of the most important people you've never heard of. He controls more than a trillion dollars in investments. He predicted the danger of subprime mortgages long before the market collapsed. He did the same for Greek bonds.
In short, he's one of a handful of people who determines how the financial world thinks about the future.
El-Erian spoke with Adam Davidson of our Planet Money team about his vision for the next 30 years.
ADAM DAVIDSON: If for some reason you want to find out if someone watches way too much CNBC or one of those other financial TV networks, just ask them what they think about the new normal. The new normal. Those guys on the money shows, sometimes it's all they talk about.
(Soundbite of financial TV shows)
Unidentified Woman #1: And now the new normal from the trading floors.
Unidentified Man #1: ...are the new normal for investors...
Unidentified Man #2: Now, we think we're driven by four and that is a new normal.
Unidentified Man #3: Evan and Minal are the faces of the new normal in the American workplace.
Unidentified Man #4: What the folks at PIMCO call the new normal.
Unidentified Man #5: What Mohamed said about the new normal...
Unidentified Man #6: We keep hearing about the new normal...
Unidentified Woman #2: Yeah, what is that?
DAVIDSON: What is that, indeed? What is the new normal, and why is everyone talking about it?
The new normal is Mohamed El-Erian's idea. He's the CEO of the major bond fund PIMCO, based in Newport Beach, California.
Now, the financial shows, they only care about how El-Erian's new normal impacts your bottom line. And yes, part of his prediction is that stocks and bonds won't do that well for many years. But when I sat down with him, El-Erian explained that the idea is much bigger than finance. It is a view about the very structure of the world economic and political system.
Dr. MOHAMED EL-ERIAN (Chief Executive Officer, Pacific Investment Management Company, LLC): The world of yesterday was a world of tidy categories. On the one hand, you had industrial countries - advanced economies. On the other hand, you had emerging economies. The first were the core of the system. They held the system together. The second, emerging economies, were at the periphery and tended to be crisis-prone.
DAVIDSON: Think back 12 years ago, there's a major global economic crisis started in Indonesia, Taiwan, Brazil, Russia; or 1994 when Mexico was in financial crisis; or Argentina had that economic crisis in 1982 and in 1989 and 1994 and 2001. You know the basics. A relatively poor country gets in a lot of financial trouble and the grownups - the U.S., U.K., the World Bank, the IMF - show up and sort everything out.
That sounds almost silly to say now, huh?
Back then, those olden days that existed up until two years ago, the world economy was governed by the regular meetings of the G7, the seven richest countries in the world. Sometimes, they'd let someone else show up.
Dr. EL-ERIAN: At best, countries like China would be invited to a breakfast but not really be part of the formal discussions.
DAVIDSON: In other words, Italy and Canada had much more influence over the global economy than China and India, right up until two years ago when China stabilized the world economy after the U.S. sent it into disaster.
So the new normal world is one in which the U.S., Japan, Germany have less influence. Not none, they'll still be major players, just not the exclusive major players. China, India, Brazil, many of the more successful emerging economies will have a lot more influence.
Now, I just used emerging economies and El-Erian would say that that language of developed and developing countries, of industrial and emerging economies - that language is over with.
Dr. EL-ERIAN: Lots of shorthand that we used in the past has to be changed. And that's what a paradigm shift does. That's what a regime change does. You have to go back and look at all the shorthand that you use, all the mindsets and change. And let me tell you, Adam, that is very difficult.
DAVIDSON: Look at Greece, they are technically an industrial developed economy. Same with Spain and Portugal. But they are clearly much riskier than countries that are still technically classified as emerging, developing. This is a power shift that will play out in politics, economics, culture and possibly in armed conflict. It is not easy for long-standing order to be overturned by new upstarts.
El-Erian says the next 20 or 30 years will be filled with tumult, though he has some good news for the long haul.
Dr. EL-ERIAN: We are all on this bumpy journey to a new destination. The new destination is more stable. It is better to have many locomotives of growth in the world.
DAVIDSON: Meanwhile, El-Erian says don't expect too much from your stocks and your bonds.
ROBERT SIEGEL, host:
From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.
MICHELE NORRIS, host:
And I'm Michele Norris.
Mohamed El-Erian is probably one of the most important people you've never heard of. He controls more than a trillion dollars in investments. He predicted the danger of subprime mortgages long before the market collapsed. He did the same for Greek bonds.
In short, he's one of a handful of people who determines how the financial world thinks about the future.
El-Erian spoke with Adam Davidson of our Planet Money team about his vision for the next 30 years.
ADAM DAVIDSON: If for some reason you want to find out if someone watches way too much CNBC or one of those other financial TV networks, just ask them what they think about the new normal. The new normal. Those guys on the money shows, sometimes it's all they talk about.
(Soundbite of financial TV shows)
Unidentified Woman #1: And now the new normal from the trading floors.
Unidentified Man #1: ...are the new normal for investors...
Unidentified Man #2: Now, we think we're driven by four and that is a new normal.
Unidentified Man #3: Evan and Minal are the faces of the new normal in the American workplace.
Unidentified Man #4: What the folks at PIMCO call the new normal.
Unidentified Man #5: What Mohamed said about the new normal...
Unidentified Man #6: We keep hearing about the new normal...
Unidentified Woman #2: Yeah, what is that?
DAVIDSON: What is that, indeed? What is the new normal, and why is everyone talking about it?
The new normal is Mohamed El-Erian's idea. He's the CEO of the major bond fund PIMCO, based in Newport Beach, California.
Now, the financial shows, they only care about how El-Erian's new normal impacts your bottom line. And yes, part of his prediction is that stocks and bonds won't do that well for many years. But when I sat down with him, El-Erian explained that the idea is much bigger than finance. It is a view about the very structure of the world economic and political system.
Dr. MOHAMED EL-ERIAN (Chief Executive Officer, Pacific Investment Management Company, LLC): The world of yesterday was a world of tidy categories. On the one hand, you had industrial countries - advanced economies. On the other hand, you had emerging economies. The first were the core of the system. They held the system together. The second, emerging economies, were at the periphery and tended to be crisis-prone.
DAVIDSON: Think back 12 years ago, there's a major global economic crisis started in Indonesia, Taiwan, Brazil, Russia; or 1994 when Mexico was in financial crisis; or Argentina had that economic crisis in 1982 and in 1989 and 1994 and 2001. You know the basics. A relatively poor country gets in a lot of financial trouble and the grownups - the U.S., U.K., the World Bank, the IMF - show up and sort everything out.
That sounds almost silly to say now, huh?
Back then, those olden days that existed up until two years ago, the world economy was governed by the regular meetings of the G7, the seven richest countries in the world. Sometimes, they'd let someone else show up.
Dr. EL-ERIAN: At best, countries like China would be invited to a breakfast but not really be part of the formal discussions.
DAVIDSON: In other words, Italy and Canada had much more influence over the global economy than China and India, right up until two years ago when China stabilized the world economy after the U.S. sent it into disaster.
So the new normal world is one in which the U.S., Japan, Germany have less influence. Not none, they'll still be major players, just not the exclusive major players. China, India, Brazil, many of the more successful emerging economies will have a lot more influence.
Now, I just used emerging economies and El-Erian would say that that language of developed and developing countries, of industrial and emerging economies - that language is over with.
Dr. EL-ERIAN: Lots of shorthand that we used in the past has to be changed. And that's what a paradigm shift does. That's what a regime change does. You have to go back and look at all the shorthand that you use, all the mindsets and change. And let me tell you, Adam, that is very difficult.
DAVIDSON: Look at Greece, they are technically an industrial developed economy. Same with Spain and Portugal. But they are clearly much riskier than countries that are still technically classified as emerging, developing. This is a power shift that will play out in politics, economics, culture and possibly in armed conflict. It is not easy for long-standing order to be overturned by new upstarts.
El-Erian says the next 20 or 30 years will be filled with tumult, though he has some good news for the long haul.
Dr. EL-ERIAN: We are all on this bumpy journey to a new destination. The new destination is more stable. It is better to have many locomotives of growth in the world.
DAVIDSON: Meanwhile, El-Erian says don't expect too much from your stocks and your bonds.
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