Call Me Back - with Dan Senor - Mohamed El-Erian on B-R-I-C-S (& J-E-T-S)

Episode Date: September 7, 2023

Dr. Mohamed El-Erian returns to the podcast to discuss the implications of the recent announcement of the expansion of BRICS, China's economy and possible spillover effects in the West, past forecasting of recession/stagflation, and the Fed's inflation target. We also discuss Mohamed's new book: "Permacrisis: A Plan to Fix a Fractured World" We begin the podcast with a conversation about the upcoming NFL season. To go straight to the discussion about the BRICS, the macro economy and global markets, begin listening at 17:00. Mohamed El-Erian is President of Queens' College at Cambridge University. He serves as part-time Chief Economic Advisor at Allianz and Chair of Gramercy Fund Management. He’s a Professor at The Wharton School, he is a Financial Times contributing editor, Bloomberg Opinion columnist, and the author of two New York Times best sellers. He serves on the board of the National Bureau of Economic Research, and of Barclays and Under Armour. From 2007-2014, Mohammed was CEO/co-CIO of PIMCO and was chair of President Obama's Global Development Council. He also served two years as president and CEO of Harvard Management Company, the entity that manages Harvard’s endowment. He has been chair of the Microsoft Investment Advisory Board since 2007. Book discussed in this episode: Permacrisis: A Plan to Fix a Fractured World -- https://www.barnesandnoble.com/w/books/1143921882?ean=9781398525610

China has systematically been building little pipes around the US at the core of the system. They started with bilateral relationships with lots of African countries. Then we had the Belt and Road Initiative. Then we had a brand new institution, the Asian Infrastructure Investment Bank. We don't need it. We have a World Bank. We have an Asian Development Bank. And now we have an expanded BRICS.

So what you're seeing is China building more and more pipes, hoping that at some point they will get to critical mass and they will fragment the system away from the US. We should expect China to continue to build an alternative global order. What happened to those forecasts back in the spring about a coming recession and stagflation? Among those making those predictions was our frequent guest and fan favorite on this podcast, Mohamed Al-Aryan. One of the issues I've been meaning to check in with Mohamed on is, is he still as gloomy as he was just a few months ago? I also want to talk to him about recent news of BRICS or the expansion of BRICS. That's the loose affiliation of Brazil, Russia, India, China, and South Africa, which has now expanded to include a number of countries

that were once G20 countries. So now geopolitics meets global economics. And I was curious what Mohammed thought are the implications of that development. And Mohammed has a new book coming out in a couple months. We'll dedicate a longer conversation to that book as it gets closer to publication date. But now it is available for pre-order, and I've been perusing it,

and I wanted to just get his take on what he was trying to do with this book, which is a very novel approach to writing a book, which he'll talk about. As our listeners know, Mohamed is president of Queens College at Cambridge University. He serves as a part-time chief economic advisor at Allianz, and he's chair of Gramercy Fund Management. He's a professor at the Wharton School. He's a Financial Times contributing editor, Bloomberg Opinion columnist, and the author of two New York Times bestsellers. He serves on the board of the National Bureau of Economic Research and of Barclays and Under Armour. He was previously CEO and co-CIO of PIMCO and was chair of President Obama's Global Development Council. And he also served two years as president and CEO

of Harvard Management Company, the entity that manages Harvard's massive endowment. Now, we talk a lot about economics, markets, and the intersection of those two with geopolitics. But we also spend a little bit of time talking about the onset of the NFL season, which begins imminently. Okay, maybe not a little bit. I intended to just do a little bit, but it actually went on for about 10 or 12 minutes. To understand why, I quote from this piece in the New York Times earlier this week by Matthew Walter, who wrote, and he sums up exactly how I feel and how Muhammad feels. He writes, there is no English noun that adequately conveys what millions of fans experience on the eve of the pro football season. Only something like an ancient Greek concept, which is used to describe the absence of disturbance or trouble, but connotes a kind of sublime contentedness, begins to approach our exquisite

feeling of detachment from all worldly cares. That's how the launch of the NFL season feels to Muhammad and to me, and I think to lots of our listeners, but not all of them. So if football isn't your thing, you may want to fast forward past the first 10 to 12 minutes, at which point we get into the real substance. But I otherwise hope you'll listen as Mohamed and I nerd out on our soul-matedness about all things New York Jets and football. He's more of a pessimist. Maybe he's more of a realist. I'm ever the optimist, but I think I have very good reason to feel that way as we enter this season. What happened with that recession and stagflation? And what's going to happen with an expanding BRICS?

Mohamed El-Aryan explains. This is Call Me Back. And I'm pleased to welcome back to this podcast, fan favorite, macro economist and market strategist extraordinaire, Mohamed Al-Aryan, and most importantly, fellow New York Jets enthusiast. Mohamed, you can see me right now. Only for you, for our podcast recording, would I wear my Aaron Rodgers t-shirt and my Jets hat. You did not come prepared. You're wearing a blue shirt. I don't know why that is. Are you rooting for the LA Rams or something, or Buffalo Bills? I don't know why you're wearing blue. I purposely wore green. I thought we'd be totally synced up, and I feel alone.

Well, you're not alone. We are together and thank you for having me back. The reason why I didn't wear green is because I'm not smart enough. I do have a lot of green upstairs. I know you do. I simply didn't think of wearing green

this time around, I must say. I'm ashamed. When I've seen you at Jets games, even when I was with you, you were like head to toe. You wear all the merch, all the swag. And here you are like, I don't know. I just feel like I'm not sure. When I see the blue, I just question how much you are bleeding green. But I want to start with a question that came from my friend Adam Katz. And it relates to what we're talking about right

now because it's the first question i want to ask you he he he like many others requested that we have you back on soon for many reasons not the least of which is the home opener uh of the jets against the buffalo bills and and wanting to have you on right before that event. And two, so we're having you on a couple days before the season kicks off. And two, because there's a stuff going on in the economy that at some point it would be good to get your thoughts, but that's really secondary. But Adam asks this question, and I read it. He asks, what does Muhammad think,

which of the following does Muhammad believe will hit the over first? A trimmed mean CPI, Consumer Price Index of the Cleveland Fed at 3%, so over 3%, or 10 wins for the New York Jets this season. Will the Jets get over 10 wins for the New York Jets this season? Will the Jets get over 10 wins? Over 3% CPI or over 10 wins for the Jets? Which is more likely? So Adam, I'm sorry to say that we are more likely to see first a trim CPI above 3%. That actually could happen within the next few months before the season is over and before the Jets win 10 games. It doesn't mean that the Jets can't win 10 games.

Wait, so the implication there is, okay, it doesn't mean that the Jets can't win 10 games. You're just saying it's not going to happen in the early part of the season. I'm saying that the Jets are not going to win 10 straight games. Right. Whereas by the end of November, December, we could well be above 3%. Okay, but you did qualify it, and I just want to dwell on that for a moment.

It's not that the Jets can't get over 10 games. You just say it may take us through the latter part of the regular season. Yeah, just like it's not that I can't lose 15 pounds. It's just unlikely to happen. Okay. So we'll talk about the macros in a moment, but those are far, as I said, far less important to the issue at hand here. I sense from you, Mohamed, not just because you're wearing blue today when I'm wearing green. I sense generally when I see you, including when I saw you earlier this summer,

and I was expressing my enthusiasm and I was a vessel for my children's enthusiasm about the Jets season. Even knowing that we have a Hall of Fame quarterback, even knowing that we have a rookie defensive player of the year on our defense, even knowing that we have a rookie defensive player of the year on our defense, even knowing that we had the rookie offensive player of the year on our offense, even knowing we have a top three, top four, maybe top five defense. Someone over the weekend was comparing our defense to the defense of the Chicago Bears 85-86 season, which is regarded as one of, if not the best, defenses in the history of the NFL, the Super Bowl XX Chicago Bears defense.

I could go on and on and on with all the wide receivers, Brees Hall and Dalvin Cook, even with this incredible leadership in the team. Youth plus experience, you're still negative. Why? Why can't you be happy? I am happy, but I don't want to get carried away. People are getting carried away. We have all those things. Undoubtedly, we have all those things, but it takes time for a team to gel. It takes time for all the different parts to work together. And the last thing I want are the following four teams to meet right at the beginning of the season. The Bills, the Cowboys, the Patriots, and the Chiefs.

I would have rather started with something a little bit easier. So, look, I am with you. We have incredible parts. Hold on. I want to pause right there. You're focusing on the first few weeks. So the Bills, that's a tough opening game, although one I think we could win. Keep in mind the Jets beat the Bills last year,

win one game and came darn close in another game. And the other game that we didn't win was with a real beat up Mike White as quarterback. The, the, okay. And now we,

and now our quarterback is Aaron Rogers. So we've beaten the bills before, and this is our home opener and the fans are going to be just completely torqued. I spoke to someone in the jets ticketing office who told me he's never seen anything like this. You can literally cannot buy seats for the Jets game through regular par face value ticketing services for this opening game.

The place will be on fire. It's the opening Monday night football of the season. The Cowboys are eminently beatable. That's week two. Okay. They're not a powerhouse. Patriots remains to be seen. I actually think the Patriots are going to be stronger than we may think. And yet they still

very easily could be cut, wind up fourth in the AFC East and the chiefs. I will grant you the chiefs will be a tough game. So I see us winning two of those four, first four games, Cowboys and Patriots and possibly three. Okay. So I hope you're right. I hope we start three and one. Then we should be able to beat the Broncos. Then we have the Eagles. Fine. That's hard. I agree the Eagles are hard. Then we have a subway series, quote unquote, so to speak,

except in the same stadium. Jets against the Giants. Right. Then we have the Raiders. Hold on. Do you think we can beat the Giants? Yeah, we can beat the Giants. Okay. Okay. Raiders? We can beat the Raiders. No, no. Then we have the Chargers. Then we have the Raiders. Hold on. Do you think we can beat the Giants? Yeah, we can beat the Giants. Okay. Okay. Raiders? We can beat the Raiders. No, no.

Then we have the Chargers. Then we have the Chargers. Then we have the Chargers. That's going to be tough. Then the Raiders. Then we have the Bills again. And then the Dolphins. Then the Bills is away.

So that's tough. And the Dolphins? Dolphins, it remains to be seen. I mean, when they're good, they're really good. But they are inconsistent. So look, I will take a two and two start. Then we do Falcons, Texans. Yeah.

We just need to get through the first part of the season. That's all. And we need to end the first part of the season, call it, I don't know. I don't know. I'm tempted to say. Say it. If we get through and we are either five and four,

six and three, I'll be over the moon. Yeah. Okay. So I just want to tell you, Eli Senor, who you know, I suggested that we go to the, we always go to at least one, sometimes two away games every season. I suggested that we go to the Patriots away game, the Jets game in Foxborough on January 7th. And Eli Senor pointed out to me that that would not be a great game to play, to go to because the Jets will probably not be playing their starters for that game because at that point it will be obvious that the Jets have clinched a playoff spot. So why bother playing your starters?

Needless to say, I think you think that is, shall we say, irrational exuberance to you. So I think you should not go. Quote Alan Greensman. Correct. I think you should not go to that match. I think your son is absolutely correct. I think where we need you is in Buffalo.

That is where we need you. Yeah. Okay. November 19th. All right. Maybe you'll join us. Um, I do want to make one other point that when we last got together,

I, I expressed incredible enthusiasm for our defense. I, I expressed incredible enthusiasm for our offense. And I obviously, including our, our quarterback, I had some apprehension about our offensive line.

Correct. And its ability to protect Aaron Rodgers. And I noted that when the Buccaneers got Tom Brady, they invested heavily in their offensive line to protect this man, this jewel. And I was worried that we were a little wobbly there. I no longer believe that is the case. I think our offensive line, Makai Becton, who was top draft pick for us a couple of years ago,

but has had a three years ago, I think has had a rough first couple of seasons and hasn't played much because of injuries. And there's an incredible buzz coming out of jets training camp out of Florham park about Makai. He's now going to start. We have Dwayne Brown back. So the pieces are coming together on the offensive line.

So I actually think Rogers is going to be pretty well protected. So let me be clear. There's nothing more that I would like than you being right across the board. Okay? Nothing more. Okay. Okay. Since 1969, I used to be as hopeful as you are,

and then I've been bashed into being a little bit less hopeful. But I hope you're right. I love my Jets. You love your Jets. Let's see them have a really good season. But so that the prediction is out there, you think we make the playoffs, and how deep do we go into the playoffs?

Well, let me just say this. I think we win the AFC East. Okay, and how deep into the playoffs i think we make it i think we make it to the afc championship that's my prediction and i have no and i have no sense for what happens beyond that i'm not i don't know if we win the afc championship obviously if we win the afc championship i have no idea if we win the AFC championship, I have no idea if we win the Super Bowl. But I feel... And the AFC is tough this year, but yet I think we can make it pretty deep into the playoffs. My fear, of course,

if we make it into the AFC championships and we're up against the Chiefs. That's what worries me about the AFC championship. I'm going to hold to this prediction so tight, so tight. I'm going to repeat it to myself every night. And I think going to hold to this prediction so tight, so tight. I'm going to repeat it to myself every night. And I think we win 11 to 13 games. I cannot wait for all that to work out.

I'll be the first one to come and hug you and say, you can have anything you want, anything you want. I don't care what it is. Yeah. No, no, I really, by the way, and then we will, I promise to our listeners, we will move off this. Do you, have you been watching Hard Knocks? I have not because everybody else has gotten sucked into it.

And I want to have some rationality. I'm seeing all my friends that are Jets fans completely sucked into this process. Well, the combination of Hard Knocks and then we've been to Jets practice a couple of times. And it is, you feel the energy. You feel Aaron Rodgers has a new lease on life. You see him mentoring these younger players. Some of these players he's investing time in who weren't even going to make the 53 man roster.

He's like basically another coach. It's like he and he and Sala are like coaches together. Zach Wilson is playing at a whole other level, much better than I've seen him play in his first two seasons, which isn't saying much, but he's being completely mentored by Aaron Rodgers. Rodgers' connection with Garrett Wilson, our star receiver, is just, I mean, the plays that were happening at training camp were extraordinary. I don't want to compare it to Joe Montana and Jerry Rice, Rodgers, Wilson, but I think people will be talking about this incredible combo by midway into the season, just past when we hit 10 wins.

You know what quite a few people listening to this are thinking? What? I don't know what Dan's had today, but I want some of it. Yeah. Okay. So now we're going to move on to the more trivial stuff. I want to first have you spend a moment talking about a book that you have coming out. It's coming out in the UK at the end of September, and then it is coming out in the US at the end of October. It is called Permacrisis, A Plan to Fix a Fractured World, which you co-authored with Gordon Brown, former prime minister of the UK, and Michael Spence. And you told me when you were working on this book, and I remember thinking that it was the most innovative process for the

creation, for the production of a book, which is almost more interesting than the actual outcome of the book. And later on, closer to the book's release, we'll have a longer conversation about it. But this is just like a teaser for listeners. Can you explain the origin story of this book? Sure. So when we locked down in March of 2020, somehow the three of us, Gordon Brown, Michael Spence, who is a Nobel

Prize winner in economics, and myself decided to have a weekly Zoom call. And we started to have this call and we bring different things to the table. Mike is probably the best economist I know. Gordon has had enormous experience in both domestic and global policymaking. And I, to the extent I brought anything to the table, was intersection of economics, policy, and markets. And we started talking and we kept on talking.

And after a year, we realized that we had covered quite a few issues and we realized that we were optimistic about trying to fix a world that was getting more fragmented economically, financially, institutionally. And that seems to be going from crisis to crisis. And then someone said, why don't we write it down? And there was an oh, something moment when we realized no one had taken notes. But we ended up by writing it. And basically the argument...

So you just basically reconstructed these conversations? Correct. We basically came down to the view that most of our problems boil down to one or more of three things. One is the inability to generate high and inclusive economic growth. We simply haven't been able to do this. Two, bad domestic policy implementation. And three is fractured global governance. And if you can solve for some of these issues, if not all three, you can get us out of this feeling of perma-crisis.

You know, this notion that we go into low growth, high inflation, people are worried about their income security. We can break through this. And if we ever do, that has really good political and social implications. Okay. But I want to then pick up on something that's happening right now, because you talk about the need to address global governance, which all these areas seem challenging. Global governance, to me, in the world we live in, it feels that we're in another cold

war with China. Global governance seems to be the hardest. And I want to ask you about the recent, in the last couple of weeks, announcement that the BRICS organization, association, would be expanding, which was a big story. So as I mentioned, the introduction of this episode, BRICS, consists of Brazil, Russia, India, China, and South Africa. And it is now the big news, and it was big news, was adding new members to include Iran, Saudi Arabia, the UAE, the United Arab Emirates, Egypt, Ethiopia, and Argentina. Now, I want to just provide some data here just to lay out why the BRICS, as a counter to the G7, as it's no doubt how they see themselves, why they think they have so much power if they work

together. The 11 BRICS nations account for 46% of the world's population, 37% of global GDP in purchasing power, in purchasing power parity terms, which exceeds the G7's 30% share of GDP. And the BRICS also includes six of the world's 10 largest oil producers, five of the world's 10 largest oil consumers, about three quarters of the world's rare earths, and 50% of graph. I can go on and on with this data. It seems like a pretty powerful block up against the G7. So this is increasing or continuing, if not intensifying trend that the world is divided geopolitically, geo-economically. And here you're saying, well, we need to figure out how to get global governance working together. How do you get global governance working together when you have events like this? So the only thing these countries have in common

is that they're not G7 countries. That may be necessary for them to come together, but it's not sufficient. So if you look very narrowly as to what this expansion of the BRICS will do, and remember, this is an expansion pushed by China. Other countries were hesitant. China pushed it very hard.

It will not... Other members of the new BRICS countries were hesitant? Correct. India in particular was hesitant. It will not in itself radically change. It's not as if the BRICS will be like the G7. However, this tells you something really important, which is China has systematically been building little pipes around the US at the core of the system. They started with bilateral relationships with lots of African countries.

Then we had the Belt and Road Initiative, which is an expansion of Chinese economic and financial links with a set of countries. Then we had a brand new institution, the Asian Infrastructure Investment Bank. We don't need it. We have a World Bank. We have an Asian Development Bank. But China felt that they needed bigger influence. And now we have an expanded BRICS. So what you're seeing is China building more and more pipes, hoping that at some point they will get to critical mass and they will fragment the system away from the US. That's what's going on. Is it happening yet? No, but we should expect China to continue to build an alternative global order. Yeah. So China is in this protracted standoff with India and the composition of these governments

is quite odd. All the G7 countries are a formal ally of the United, all the G7 members have formal relationships with Washington. In the case of the BRICS, you have some democracies, India, Brazil, Argentina, and South Africa. Then you have autocracies, China, Russia, Iran, Egypt, and Ethiopia. Then you have monarchy, Saudi Arabia, and UAE. The poorest BRICS member, Ethiopia, according to one piece I was reading in the Wall Street Journal, has a per capita income only 3% of that richest member, UAE. And this piece I read in the journal goes on, South Africa has trouble keeping the lights on. Iran's sluggish clerics beat up women for burying their heads. Argentina

can't keep a lid on inflation, currently over 100%. And Ethiopia just ended a brutal civil war against the rebellious Tigray region in the rebellious against the rebellious Tigray region. So so. Global governance, like how are these countries going to work together? I take your point that is all Chinese influence or whatnot. So do you think the whole thing just withers and breaks apart and fractures and it was just a headline thing, but it ultimately doesn't go anywhere? I don't think it's going to go anywhere other than put pressure on not the G7 as much as the G20. Do you remember the whole idea of the G20 was to bring in the G7 and then bring in a set of developing countries, many of which are actually here in this new group?

Yeah, like Argentina was part of the G20. I mean, yeah. Saudi Arabia was part of the G20. I mean, yeah. Saudi Arabia was part of the G20. Brazil, Russia. Yeah. China, of course. So this is a challenge to the G20. And the G20 hasn't been able to come up with a communique for the last few meetings. Imagine this. In the old days, you came up with a communique that had some teeth. Then we used to come up with a communique that's teethless. Now the group is incapable of coming up with a joint communique. So I think the real focus is the fact that the G20, where there was a lot of hopes about global governance, is now under pressure.

It goes back to the most valuable institutions we have are the World Bank, the IMF, and the WTO. And we need a collective effort to make them more representative and more effective. They are the best institutions we have. And all this alternative architecture that's being built is simply not going to be as effective as what we already have. And all this alternative architecture that's being built is simply not going to be as effective as what we already have. Okay. I want to pivot to where we are with the markets and the macro

economy. Back in April of this year, when we were in the middle of a slow rolling banking crisis of some sort, you were quoted as saying, and I'm quoting here, the flashing red light resulting from a speed of light run on the U.S. banking system, or what economists broadly refer to as financial contagion, is behind us, yet it is too early for policymakers to declare mission accomplished. Instead, red has become a flashing yellow due to the slower moving economic contagion, whose main transmission channel, that of curtailed credit extension to the economy, increases the risk, not just of recession, but also of stagflation. So you were concerned about risks of recession and stagflation. Where are we now? Are you less worried? I mean,

we don't seem to have either of these yet or at all. So we're in a better place. And the US economy has consistently surprised to the upside. It is outperforming not only projections, but is also outperforming China and Europe in a significant manner. And the result of that is many, many people have had to step back from the prediction of a recession. And that is a good thing. So if we look at the first eight and a half months of the year, the one big takeaway is how well the U.S. has done in the face of significant external and domestic headwinds. What about looking forward? There is no reason for the U.S., and I've been consistent on this issue, there is no reason for the US to fall into recession unless we get another policy mistake by the Federal Reserve. The economy has momentum from the corporate sector. It has momentum from the household sector. It is innovating. And whether you agree with it or not, and there's a lot of discussion on it,

the Inflation Reduction Act is a major attempt to accelerate the transformation of the economy and to transform it towards the engine of growth of tomorrow as opposed to yesterday's growth engine. So I am optimistic on the US economy with the one big qualification is the avoidance of another Fed policy mistake. And that avoidance for me means that the Fed will have to live with inflation that is slightly above its target because the target itself of 2% is no longer suitable for a quickly changing economy such as what we have in the US.

Why not? So by the end of the year, the Fed is going to have one of two choices. With inflation above 2%, either live with higher inflation, which I hope that they take. And I'm talking about just, I'm talking about two something, three percent.

I'm not talking about something much higher than that. Or alternatively, crush the economy to get to two percent. That's going to be the choice, and that's going to be critical to the well-being of the US economy. And just in terms of how we got here, to head back to the beginning of our conversation, there's a lot of spiking in the end zone. There'll be a lot of spiking in the end zone at MetLife Stadium this season. But there's a lot of spiking in the end zone. There'll be a lot of spiking in the end zone at MetLife Stadium this season, but there's a lot of spiking in the end zone about how things have, the economy has quote unquote stabilized. The economist Alan Blinder describes what happened as the following, and I'm quoting here, most of the rising inflation wasn't due to an overheated economy fueled by monetary and fiscal policy, but rather to several special factors

that will disappear on their own. Principal among them were rising prices for food and energy and supply side bottlenecks from the pandemic. So he says pandemic withers, pandemic goes goodbye, and then suddenly things come back to normal. I completely disagree with what he said. Let's not forget that we've had five and a quarter percent points increase in interest rates. We've had a complete change in the liquidity paradigm. We've had the Fed, instead of flooding the system with money, is now actually taking money out of the system. So this inflation hasn't come down in sort of magical way. It has come down because the Fed has embarked on the most concentrated set of interest rate increases for decades.

That plus the reversal of some of the pandemic effects have taken inflation from 9.1% last June, June last year, to just above 3% now. It hasn't happened magically. It's happened because we've had significant interest rate increases. And if you are trying to get a new mortgage, if you are trying to get a new loan, your life has changed. In fact, there are many people who are hoping to move out of their homes into something else that are being stopped by doing so because they can't afford their new mortgages. So we have had a fundamental change in the financial environment that has led to this reduction in inflation along with the reversal of certain things.

The big surprise is that this has not come together with a recession. Lots and lots of people were forecasting a recession. Then it became a rolling recession. Now most people don't think we're going to fall into a recession. And that's a major achievement and shows you the inherent strength of the US economy. Are you surprised by... Well, first of all, at this point, I want to ask you about China's domestic economy. Are you surprised by, well, first of all, at this point, I want to ask you about China's domestic economy and why the markets have not, at least in my view, not just my view, a lot of expert views, the spillover of the effects of China's economic deterioration and demographic

deterioration have not contaminated the global macros. But before I get to that, how would you evaluate what's going on in China's economy right now? They're in a mess. They have two problems. And I have a column coming out in Financial Times on this, so it's fresh in my mind. Not only have they had a weaker bounce back from the zero COVID policy that stifled the economy, but the structural weaknesses of their growth engine are now visible. And they, I think, have realized that they have neither the ability nor the willingness to revert back to what the market really wants and the market is really pushing for, which is a 2008 stimulus big bang. That's what the market wants. The market wants

them to go all out on fiscal and monetary policy in order to generate domestic growth and in order to restore China as the global engine of growth. That is not going to happen. It's not going to happen. And why? Why won't it happen? Because they can't? First, they don't have the ability to do so because they are facing not only a growth problem, but a debt problem. And if they simply throw more money at it, they are going to turn what are pockets of

indebtedness, over-indebtedness into systemic risks. Second- But just hold on, Mohamed. Why wasn't that a factor for them in 2008, 9, and 10? Because they didn't have high levels of debt like they do today. They have been relying for the last 15 years on a growth model that is based on property,

which has been shown to be a bubble, inefficient state-owned enterprises, and local debt. And all three now are exhausted. So they simply can't go back to the same playbook. It's as if you're using an old defense when your opponents, remember when the 49ers introduced the West Coast defense and the West Coast offense, and the other defense isn't addressed.

You've got to adjust your playbook. But there's also willingness issues. They know that they need to break through what's called the middle income trap, which is the inability of fast growth to take you into high income status. Look how many times Brazil has failed, Argentina has failed. So they realize that they need to fundamentally reform their economy. And they also realize that the past stimulus led to a lot of corruption. So I truly

believe that they neither have the ability nor willingness. So we are going to continue to have these half-hearted stimulus measures, but nothing major. And China is not only looking at the next six months of slow growth, but I no longer think it's a done deal that they will become larger than the US. I think that those people who continue to say that simply don't understand how difficult China's growth dynamics have become.

And where does demographics fit into this conversation? It makes things worse. That's why people are worried about the so-called Japanification of your population. As you get older and as you're worried about the few kids that you do have, you spend less and you save more. And it's very difficult. And then you have deflation, which means that goods are cheaper tomorrow than they are today. So you delay spending even more.

So some people, I'm not there, but some people go one step further than me and say, what you're going to see happen is China slip into Japanification. I don't think we're there yet, but that's a risk. Then Japan's prime minister quoted as saying that this is one of the biggest demographics. Basically, a shrinking and aging population is one of the biggest threats to the future of Japan. And if China's heading that same direction, I have this stat in my next book on Israel that's coming out comparing Israel's demographic miracle to other countries. And there's this one stat that Japan now for the last number of years has been selling more. the market for adult diapers in Japan is now larger, has surpassed the market for baby diapers.

And China is probably not far behind that. By the way, parenthetically, the same could apply for many countries in Europe. I want to, and I know we've got to wrap in a little bit, I have two questions for you. One, why haven't the global markets absorbed this? Where is the spillover from this reality? So we are right now in the midst of yet another love affair with a global soft landing. Since we started talking a bit over a year ago, conventional wisdom has done the following. Soft landing, then no no landing then hard landing

and then when we spoke in march of this year crash landing back to hard landing and we're now at soft landing we're now back at soft landing right i mean that's that's incredible i know i know i know the term soft landing by the way in and of itself the history history of it is how it's been used in various economic crises over the years, but go ahead. And the reason why that is we live in an incredibly fluid world and there are so many moving pieces that conventional wisdom changes very, very quickly. There is a hope that China's old playbook will not only be repeated, but will be effective. But that ignores the simple question, why hasn't China done it? Why didn't China go to a big bang stimulus already? They are smart. They are known to course correct really quickly. They don't have to go to Congress. They don't have to get both parties to agree. They can just decide and do

things, but they haven't. And I think that in itself tells you a lot about the challenges that are facing the Chinese economy. Before we let you go, what are your latest views on the future of India's economy? So we had, by the way, we had Walter Russell Mead from the Wall Street Journal on a few weeks ago, and he had just spent meaningful time in India. And he is extremely bullish on the economics of India and the role it will play globally, on the geopolitics of India and the role it will play globally. And he's sort of pulling his hair out that the US is not being more strategic about how it thinks about India's changing role in the world. So I do think India is and will continue to be the fastest growing developing country.

They have two things that are really meaningful. The first one that is, I think, widely understood is that they are taking a lot of steps that's enabling the private sector. And now you're getting genuine, lasting private sector-led growth going on in India. The second thing is that if you're born today as a country and you ask, what sort of attributes would I like? They're completely different than what we wanted in an era of globalization. During the era of globalization, you wanted to be Singapore. Small, open, dynamic. And that means you could use the global economy to turbocharge your own growth.

In today's global economy, where globalization is fragmenting, you want to be large, closed, and relatively diversified. Of course, the US is a perfect example of that, but India is not that far behind. It is, of course, a lot poorer, but if policy continues to stay on the right track, and if the private sector continues responding like it has, then India can sustain pretty high growth rates for a number of years. And do you feel in your world, with your peers in the markets and market strategists and macroeconomists, they are focused on India, the way they've been consumed with China the last couple of decades? Do you feel that there's an appropriate pivot, a commensurate pivot to India, given what you're citing? Not as yet. In terms of how they think about it?

Not as yet. In terms of how they think about it? Not as yet. I think the focus is still on China and understandably so. China has been a miracle. It is incredible what China has achieved. People I don't think have looked beyond China to India enough, but it will happen. By the time we speak next, I think there's going to be a recognition that the baton has been passed from China to India in terms of the fastest growing, significant, systemic developing country. All right, Mohamed, we will leave it there. We will post in the show notes Permacrisis, which is it available for pre-orders now in the U.S.? It is.

All right. So we will post that in the show notes, encourage our listeners to purchase Permacrisis. And when the book comes out closer to the actual pub date, we'll have a longer conversation about it. And we encourage listeners to read Mohamed's piece in the FT out today on China. And we will speak again, I presume, sometime after the electric opening to the New York Jets, AFC East winning and beyond, and beyond. May the record reflect

that there's nothing I want more right now than for Dan to be correct in terms of my New York Jets winning the AFC. Over 10 wins. Over 10 wins. It just may not be before the Cleveland Fed, you know, it's... Trending inflation.

Exactly, at 3% going past. It may not be before then, but it will happen. And over 10 means we are headed for playoffs. An AFC championship. You said I wrote it down. Make it to make it to the championship. I didn't say we'd win the championship. I said we make it to the championship.

I'll take that any day. Thank you. All right. Mohammed, as always, thank you, my friend. Look forward to seeing you soon. Thank you. That's our show for today. To keep up with Mohamed El-Erian,

you can follow him at Bloomberg Opinion and you can follow him at the Financial Times. And of course, you can follow him on Twitter at El-Erian M. At E-L-E-R-I-A-N M. Call Me Back is produced by Alain Benatar. Until next time, I'm your host dan senor