PIMCO Chief Operating Officer Doug Hodge says that monetary easing alone isn’t enough to repair the U.S. economy, and that America is “in for a slow period of balance sheet rehabilitation” that will take years.
“What we’ve learned though is that monetary policy alone, it’s necessary but it’s not sufficient,” Hodge tells FOX Business Network. “And that’s why we’re in the third round of quantitative easing. So we’re in for a slow period of balance sheet rehabilitation, and this is going to take years. There is no simple way out, we need a couple of things. We need policy that reins in some of the spending in the deficits, that delivers consistent revenues and that promotes growth, and we are suffering on all three right now.”
Hodge also discussed the U.S. “fiscal cliff”. He says that the cuts involved with the fiscal cliff would account for about $720 billion dollars in spending, or 4.5% of gross domestic product. “No one believes that that’s what’s going to happen,” however, he says. “They’ll be some negotiated settlement, whether it’s Republicans, Democrats, we’ve done the analysis, our estimates, and I think they are basically consensus, we’re looking at about $250 billion dollars of fiscal tightening, which is about 1.5% of GDP.”
But with the economy growing at about 1.5% to 2.0%, Hodge says that would put us in “something that feels like recessionary conditions”.