El-Erian: Don’t Overestimate Power of Central Banks

“Mohamed El-Erian says it’s important to distinguish between what central banks can deliver and what they are incapable of doing.

“In the context of today’s complex crisis in Europe, these critical institutions have essentially been reduced to the role of fire brigades,” El-Erian, chief executive of Pacific Investment Management Co., writes in the Financial Times. “They can try to reduce the risk of a fire and, should one occur, stand ready to fight it and contain damage.”

“But, acting on their own, they are unable to alter materially the behavior of those who place whole neighborhoods at risk.”

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