The one instrument that has relative political autonomy is monetary policy. Central banks do not need to go to Congress to get approval for an interest rate hike.
Mohamed El-ErianThe once-unthinkable loss of the AAA rating will constitute a further hit to already fragile business and consumer confidence.
Mohamed El-ErianThe theory is that if you take interest rates negative, people are going to say, "That's a silly game! I'm not going to lend my money to governments who want me to pay them. I am going to go into the stock market where I can get positive returns!"
Mohamed El-ErianOnce you start moving [market] lower, then you trigger of all sorts of things. You trigger people who have to sell because they're over-levered. So they sell their winners and their losers. They're just trying to raise cash. So, what you then get is spreading malaise throughout the global markets.
Mohamed El-Erian[When] the market is trying to get to terms with, first, lower global growth, particularly out of emerging markets and China. And, second, the market is worried the central banks have run out of ammunition. So put these two things together, and then investors are repricing the market lower.
Mohamed El-Erian