Mohamed El-Erian, Chief Economic Advisor at Allianz & Former CEO of PIMCO HARDtalk

Stephen Porte killed the four men with overdoses of the drug GH B. --

GHB. Now, on BBC News, it is time for hard talk.

Welcome to the programme. How exactly does Donald Trump propose to

make the American economy great again? By junking the economic

orthodoxy is of the recent past, it seems, he wants to slash taxes,

spend big on public projects, and Rene on trade deals that he claims

rip America. -- renege. My guest today is one of the most respected

analyst in America, formerly the CEO of pinko investments, what will

Donald Trump's brand of interventionism do for the US and

the world economies. -- Pimco Investments.

Welcome to hard talk, Mohamed A. El-Erian. Thank you for having me.

You are an economist, a financial expert, doesn't the last year of

world politics, British politics, US politics, tell us that we should no

longer listen to experts like you. What it speaks to is that we have a

crisis of growth, when you run sophisticated democracies at low

growth and the benefits of the growth goes to a very small segment

of the population, things start happening, improbable is become

reality, economical, institutionally, politically. They

are no longer so improbable, maybe it is just me, using hindsight but

it strikes me as odd that we are still consistently so surprised by

these earthquake events, as you have said, there is a pattern to them,

because of what we have seen, the growing disaffection of working and

middle class people who do not see their incomes rising, their living

standards rising, what we are seeing is not so surprising. It is not but

it is surprising that it is happening on semi-different fronts.

No longer saying this is nice, we are seeing that this is signals, it

is the politics of anger that have dominated. We have negative interest

rates. Lend your money to the government, you pay down for the

privilege of money. Yet another improbable, very few textbooks speak

to this. In the context of the trump victory, but the Brexit vote, some

of the opinion polls, that is the context, but again, experts like you

always seem to believe that these kinds of votes are going to be

disastrous for markets and economies. Post Brexiteer post

Trump's victory in the United States, far from swooning, markets

have actually done rather well. Nothing has happened yet with

Brexit, the Theresa May government has gone slow, it is going to be

hard, soft, well, we know that it is going to be a long Brexit, markets

do not price long phenomenon that early, because if you are wrong, you

risk losing investors. Brexit still to be seen. The Trump reaction is

quite different, it reflects the content and tone of the

President-elect's remarks. All focused on progrowth policies, with

one exception, what he has said recently on PPP, rest has been about

infrastructure spending, deregulation, tax reform, markets

love that. The town has been very conciliatory. Brexit still has to

play out. We will get back to Brexit, let's start with Trump, why

were you such a backer of Hillary Clinton, when, as you have just said

to me, if you can pick Donald Trump's economic proposals, he is

advocating a fiscal stimulus package and a progrowth policy which

economists like you have been calling for for a long time.

Correct, a whole group of us, a monetary response which goes beyond

central banks and warning that if we continue to rely upon central banks,

then we will have problems that are going to be difficult to overcome.

Why then not be straightforward and say, there is a lot in the Trump

policy package which I quite like? Like so many of the elite, in New

York and Washington, you nailed your colours to the Clinton mast when a

lot of what you believe was in Oman about Trump's policy proposal? There

was a lot of that with Hillary Clinton and also with Bernie

Sanders, a lot of overlap, and recognition that growth must be high

and more inclusive, there were common elements, infrastructure was

common, tax reform was common, with one exception, at what tax rate

should you do this? Trump is much more ambitious at slashing taxes

than Clinton, both personal and corporate. But the reform element

was common, including taxing refunds on declared interest. What was

off-putting in Donald Trump's campaign was the anti-trade talk,

the anti-globalisation talk, and certainly, a concern I have and

others have, that the antigrowth component of his programme would

dominate the progrowth components of his anagram, so far, this has not

occurred. He has pivoted to focusing on progrowth and deemphasising

antigrowth. Except, you choose to call it antigrowth, if we stick with

trade policy, in the last 24-hour was he has chosen to be very

explicit. He will announce that the United States is tearing up its

commitments to the transpacific trade deal, what impact will that

have TT P was never finalised. Also he is not talking about crashing

tariffs on China and Mexico, which is something he had said, he has

said that he is going to dismantle NAFTA, but we have not heard that

since he was elected. Are you suggesting that key elements of the

platform will not happen? He has made a point of not talking about

them, he's not talking about either of these his election. That is... As

a politician you cannot promise the workers of America, many of whom,

they may be right or wrong, but in their terms, they see that their

jobs have been haemorrhaging to Mexico and China and developing

economies, you cannot promise you will reverse the trend, bring

American jobs home, by imposing punitive tariffs on goods made

overseas, and then not deliver, because if you do that, the

discontent and the anger you talk about will get even more profound.

May suspect late, my guess is the mere threat of these things is going

to create changes. -- may I speculate. The President-elect will

be able to go to his constituencies, with that mere threat changing

something on the margins, and he will be able to say he has got

something. Canada and Mexico have said they are winning to renegotiate

some element of Nafta. US firm saying, bringing back production, to

the US. We have not yet heard from China. If you put a gun to my head

and asked what was going to happen, the mere threat of this is going to

cause changes at the margins, at the margins, I stress, which will then

be presented to the core constituencies as accomplished

meant. That is an interesting idea, I can see, certainly, in terms of

the balance of economic power, between the United States and North

American partners, that that might work. Talking China, is in their

increasingly a different relationship, a different balance at

play, not too long from now, China is going to be the world's number

one economy, changing the economy, becoming much more sophisticated, no

longer just a make of blue jeans and children's toys, that ended a long

time ago. China sees opportunities, if Trump imposes a protectionist

worldview, China will make its own trade deals, and it may be able to

leave America behind. With or without tariffs, China is looking

for ways to bypass the system, the world is changing. The system has

the US at its core. We have built a system where the US is the builder

of global public goods. The currency, exchanging pieces of paper

for goods and services, able give their savings to the US markets, to

be managed there. What you are seeing is countries like China

beginning to say, I'm not sure that system is stable. We will build

small pipes around it to reduce dependence upon that. What tariffs

would do is risk a trade war. That is a completely different game. You

advise Allianz and sit on the developing Council of Barack Obama,

so you have your ear to the ground, not just in the United States but

around the world, how close to believe we are to an era of trade

wars? I don't think we are as close as the rhetoric would suggest,

because there is no clear constituency that pushes it on the

production side, because people have diversify the supply chain, or the

consumption side, because people consume imports as well as they can

seem domestic who produced goods. You don't get a natural

constituency. You get anger, a small segment of the population can

express the anger in a way that we pay attention, Brexit, etc, yes, but

when push comes to shove, the winners and losers are so diverse

that I don't think you get a trade war. Another element of the Trump

package, which seems interesting, you spend a lot of time on Wall

Street and Washington, Trump is suggesting that he will row back on

the so-called regular Tory framework for America's banks, he will allow

more risk back into the system, after post-2008, so much effort was

made to take it out. That will be stimulated, getting banks more

proactive, do you believe him? Steps will be taken, let me give you an

analogy, think of a motorway, a major crash, 2008, major. What's the

first thing you are likely to do, lower the speed limit, but a

policeman at every mile. That is the natural reaction. We imposed more

regulation, which we should have, and more supervision. Did the team

overshoot? Were the speed limits to low? Some thought they were too low,

they believe they have fancy cars and they can drive much faster, I

don't think that is the case but I understand why they may view this.

Now, we may go through an era where we are going to relax the speed

limit, and the critical issue is what exactly do you relax? Whether

it is the regulation of the financial system, infrastructure

spending, tax reform, the details will not matter. -- the details will

matter. One final thought, and I characterise this at the beginning,

challenging received recent wisdoms by Trump's team, you would like to

spend amazing amounts of money on public projects, roads,

infrastructures, even perhaps the wall, on the border with Mexico,

that will cause a lot of money. Trillions of dollars. To many people

that would be classic Keynesian economics, pump priming, using big

government to get the economy moving. Barack Obama did not do

that, Hillary Clinton was not talking about it on the same scale,

for you, as an economist, do you see that as an effective deliverer of a

new rate of growth? For years I have been arguing that we fell in love

with the wrong growth model, we fell in love with finance as an engine of

growth and forgot to invest in infrastructure spending, that is one

of the elements, is there a deficit? Absolutely. Is there money to fund

it? Absolutely. Designing it will be critical. One failing of

left-leaning governments in the United States, those who believe in

government, and I am thinking of the Clinton era, Barack Obama, these

guys believe in government and you are telling me that they never

actually were ambitious enough in using government to drive economic

development. They did not have Congress, I witnessed jobs bills

being presented. Infrastructure being presented, nothing past. This

has been a do nothing Congress. I'd won't do it, I shouldn't do it. I

will give you a simple metric. The most basic element of economic

elements is passing an annual budget, that is true at any level,

government, companies, household. We have had rolled over the budget,

even on the basic element of governments, Congress did not agree,

and understandably so, if you are a Democrat, or a Republican, you don't

want to be reviewed as collaborating because the threat to you when the

election comes from the extreme of your party. What is different this

time around is the Republicans control the White House, said, and

the House of Representatives. Different political confederation.

Quite a few nuances there. Going back to you over answering theme,

what we see around the world is the fruits of the politics of anger, the

people who in a sense were at the absolute epicentre of the debate

with United States settled the selection. White working-class

voters of the rust belt states, Wisconsin, Michigan and others, who

believe that Trump was going to change their lives in a way that

Hillary Clinton was not. We have discussed different elements of the

Trump Ozil package, do you believe those working class Americans, so

discontented and angry, will receive benefits from what we have

discussed? If the economy grows, the answer is, yes. Two elements. One

is, absolutely there was a core element of support, but Trump

attracted 1 million fewer votes than Mitt Romney, four years ago.

Secretary Clinton attracted 5 million fewer votes than Barack

Obama did, four years ago. There was also an antiestablishment movement,

which stopped people from supporting the establishment candidate. It is

the same thing as happened in Britain, with Brexit. Not just that

people want to change, but people who normally support the

establishment did not turn up. We saw this very clearly in the

numbers. There is fatigue among those who support the establishment,

and two elements that produce these outcomes that surprises a lot of

people. The people who are angry, perhaps we have to be mindful of the

old saying, be careful what you wish for, if we turn perspective just

briefly to Brexit, people voted because they were angry and

disaffected from the status quo, you have looked at the arguments here in

Britain about the kind of Brexit we will have, what kind of future

relationship we will have with the EU, certainly in terms of access to

the single market, if we have the most limited access, the so-called

hard Brexit, how do you see that affecting the British economy? If

you have a hard Brexit, the British economy goes into recession, that

simple... No question? That is not the message coming from senior

ministers in government who say, hard Brexit is a deal that will

allow us to openly trade with the whole world, the WTO default rules,

we will be fine. It takes time to replace something with something

else, if you have hard Brexit tomorrow, you will be replacing

something with nothing! You can go back to the default option, because

that is so far away from how the UK trades today. Let me be provocative,

hard Brexit, no, you will get soft bricks, at the end of the day,

Europe will realise it is in its interests as well as the UK's

interests to have a soft bricks it, because Europe also needs the UK,

and one final element, you will end up resolving a fundamental

inconsistency, from Day 1, Britain viewed the EU as nothing more than a

super free trade zone. -- soft Brexit. It was a guest is

destination. France and Germany see it as an ever closer union, -- it

was seen as a destination. These were two very different figures

which could never be reconciled. Europe has the opportunity now to go

ahead and I look at this and I would not have voted for Brexit, I think

it is a mistake but I understand why the outcome occurred. But now

rational people realise you can get something good out of it in the

medium term but in the short term, the journey will be really bumpy.

Quite an optimist view of what is going to happen not just in Britain

but the rest of Europe, you imply that the other 27 members have a

common vision, economic and political, which they don't, they

are internally divided among themselves. It is somewhere between

a view and a hope and hope is that rational people will the rational

things and we have time now to understand what the message of

Brexit and why it occurred and the last thing you want to do is make

things worse. Isn't the biggest sort of lesson to be learned from your

analysis of what has happened in the United States, in the UK, across

Europe, perhaps we could talk about other countries as well, the biggest

lesson is that over the last generation, democracy has not

delivered responsible sustainable successful economic policy that

delivers growth but in a way that is, as I say, sustainable.

Absolutely right, going one step further, we fell in love with the

wrong growth model. If we had this interview 11 or 12 years ago, the

paragon, the ruling paradigms was that finance is sophisticated and

enables all sorts of activities, it should not be regulated, and there

were those that were saying that finance is the next level of

capitalism, agriculture, services, and if you are really lucky, you get

to finance. We call it finance, but actually it was financial services.

The political system and everything else fell in love with this notion

that finance was an engine of growth. We overdid it and we have

not yet got out of this mode, all we have done is replaced private

finance with Central banking. The failings of democratic systems to

produce leaders who take long-term sensible economic decisions, I don't

want to put words in your mouth but looking at China today and how it

takes its position, is that rather more successful, do you think? China

has the luxury of doing something Western democracies find very hard,

because they have more frequent elections. China says, we know where

we want to be in ten years' time, I don't know every step of the way but

I know the first three steps and we will do these things and adjust. I

don't have too convince anybody that I'm not going the whole way. The

minute you say I want to be there in ten years' time, they will ask what

is happening in one, two, three, four, if you say I don't know the

year five but I will learn, they will say, how can we support you?

There are short-term is intellectually everything that we

do. We have an election process which pushes for short-term success

and markets want quarterly results, so we have a problem. A more

personal thought, we have talked about the United States and the

looming age of Trump, you are a Muslim American, you have talked

movingly before about the amount of opportunity you feel America has

given to you, in January you will have a president in place whose

message, particularly when it comes to Muslims and Islam, is in many

ways much more negative, have you reconsidered your place in America?

Firstly, I regret what has been said and the extent to which this has

fuelled a sentiment among a certain segment of the population, it is a

minority, not a majority of US population that feels that I and

other Muslims are fretting them. My point is that there is people in the

White House, come January, who appear to have an idea of Islam and

what Muslims are, which may well give you pause, I would have

thought. I hope they will look at me and the vast majority of Muslims in

the United States and realise that is an incorrect error to rise Asian.

I thinkTrump's America will evolve and a lot of things said on the

campaign will evolve. -- is an incorrect categorisation. It is

going to be a different America but it is not one where I am thinking I

should leave. Recently you have said you believe your generation has

failed the next generation, you have squandered so much of the

opportunity, what do you mean by that? We as a generation have

borrowed from the future enormously. Not just the cumulation of debt, we

have brought forward economic growth to today. Financial returns on our

pension funds today. We have borrowed and borrowed and borrowed,

I often look at my daughter and wonder what world we are leaving

her. That is why getting growth going and making it inclusive is so

urgent. Not as much for my generation as it is for future

generations. Yes, as a generation we have mishandled the allocation of

the benefits that this world economy gives us. We can still change this,

we are coming to a T-junction, we have decisions to be made to make

sure we can transition to a better world. We have to end with that

thought. Thank you very much for being on Hard Talk.

Good evening, it is cold out there, frosty for some, not for others,

variety north to south across the UK, across northern areas, a whole

lot of