Markets Numb to Washington Dysfunction: El-Erian

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Oct. 4 (Bloomberg) -- Pimco Co-Chief Investment Officer Mohamed El-Erian discusses the U.S. debt ceiling with Betty Liu on Bloomberg Television's "In The Loop." (Source: Bloomberg)

So far has not impacted the market in a negative way or as much as you would expect?

For two reasons -- first, the market has decided to look through the immediate effect.

The shutdown reduces aggregate the man.

800 thousand people are sitting at home not getting paid.

The market has decided rightly that most of this is temporary and reversible.

The market decided not to take much into account.

The second reason is that the market believes the impact on confidence whether it is consumer or business confidence, will not be lost.

Unfortunately, the markets have gotten used to dysfunction out of washington.

The market is saying this is not great news but it is not bad but the market is really worried about the debt ceiling.

If the debt ceiling gets taken hostage by the politicians, you will see a different reaction.

It sounds like we are heading down the road where we will be lumping in the debt ceiling with the government shut down and the fight over obamacare.

It looks like we are heading that way.

It looks like some politicians are attempting to play russian roulette with the debt ceiling.

However, the market expects that as we get closer to october 17, some realism will start to occur on capitol hill and our politicians will avoid what is potentially catastrophic for the u.s. and global economy.

How do you think the fed is watching all of this?

They were on the cusp of tapering a few weeks ago.

Now seeing what is going on in washington, how do you think the fed is viewing this?

Those who decided not to taper are saying we needed a bit of self-insurance.

We took out insurance with the economy and that's good news because the politicians have let us down.

The more dovish side of the fed will say this decision was better.

It does not change the big question which is that the fed is not having much of an impact on the real economy.

The really big issue is how they will regain the narrative.

It's one thing for the fed to surprise everybody which they'd did at the fmo see meeting but they have not reclaimed the narrative.

It will be interesting to see if

This text has been automatically generated. It may not be 100% accurate.

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