Chief economic adviser at Allianz warns that negative interest rates in the U.S. a recipe for disaster

Mohamed El-Erian has viewed with some trepidation the recent yield curve inversion that occurred in the US. However, the Chief Economic Adviser of Allianz projects a 70% probability of recession hitting Europe next year.

With negative interest rates hitting Japan and Europe, the phenomenon of yields below zero could soon hit the US.

El-Erian isn’t alone in his view on the threat of lower interest rates.

On fast-crumbling bond yields, former Federal Reserve Chairman Alan Greenspan recently told Bloomberg News that he saw “no barrier to Treasury yields going below zero.”

Mohamed El-Erian worried

“Negative yields in the US, the world’s biggest financial market, will break things,” El-Erian said.”The system is not built to operate with negative yields.”

Pointing out that key functionaries in the monetary system such as banks, retirement plans, and life insurers all relied upon positive interest rates, El-Erian called upon the Fed not to repeat the mistake of the ECB in allowing negative yields.

The quiet global risk

Politico conducted an interview with El-Erian on his birthday on Monday.

During the conversation, he discussed a major global trend that few people — he feels — discussing.

“The gradual fragmentation of the global economy, including persistent attempts by some countries to build multiple pipes, albeit small ones, that bypass the core occupied for decades by the United States,” he said when asked about global trends.