To Mohamed El-Erian, Donald Trump’s rising popularity and a liquidity-boosting move by China’s central bank are not wholly isolated events.

Rather, the two storylines are intertwined in the ongoing economic, financial and political instability that has resulted in longstanding slow economic growth, El-Erian said Monday at the ABS Vegas 2016 structured finance conference. 

“The system is trying to tell us something... When you grow too slowly, tensions start to rise on the economic, financial and political fronts,” he said. “When you move too slowly, policy makers have problems communicating what they are going to do, liquidity becomes more tentative, and then political pressure opens up. That is our reality.”

El-Erian, an economic advisor to President Obama and former chief executive of Pacific Investment Management Co., was giving the keynote address at the conference, which is hosted by the Information Management Network and the Structured Finance Industry Group.

The bulk of El-Erian’s speech was devoted to the global economic reckoning he sees down the road as this slow growth stirs political unrest and financial turmoil.  He painted the picture of stark “improbables” that have arisen around a stagnant economy that has been impervious to otherwise healthy economic indicators (like record corporate cash liquidity) as well as unprecedented central bank intervention with “trillions” in financial support. 

Trump’s elevation to a presidential front-runner in the U.S. and the frequent 200-point swings in U.S. equities markets are just of the two recent, and unexpected, by-products. “There are improbables all around you,” he said.

The focus of El-Erian’s remarks, however, was the performance of global central banks – also the subject of his new book, “The Only Game in Town: Central Banks, Instability and Avoiding the Next Collapse.”

“Despite trillions of dollars, Euros, renminbis and yens being injected into the system,” central banks have failed to stem volatility in the financial markets, he said.

 “The system is starting to crumble slowly. It can no longer produce stable growth and it can no longer produce financial stability,” he continued.

El-Erian predicted that less than three years remain on “this road that we’re on. Growth cannot stay stuck at this low level. Central banks cannot continue to repress financial volatility and get away with it.”

He compared the years of quantitative easing by the U.S. Federal Reserve to treatment of a chronically ill patient with medication to ease pain. Central banks have wanted to withdraw their treatment of the stagnant or sick economy, but have been reluctant due to the short-term benefits their prescriptions have provided. But with so much time invested in the patient’s (i.e., economy’s) treatment, “central banks are worried about the side effects,” El-Erian said.  

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