Q. What are the economic implications of current fiscal deficit reduction measure in advanced economies and of potentially more substantial measures in the near future?

Parikh: Starting with the eurozone, deficit reduction across the periphery of Europe is being addressed via old fashioned fiscal austerity. As these countries adopt fiscal austerity, we anticipate economic growth for the next three to five years will come in well below potential, leading to lower profit growth, higher unemployment and a period of adjustment, whereby the political pressures internally will likely be very volatile and unpredictable.

In contrast, the U.K. adopted fiscal austerity in 2010, but did so amid an extremely easy monetary policy regime. Real interest rates in the U.K. are poised to be significantly negative over a secular horizon. Still, at PIMCO, we think the U.K. is implementing what is probably the best combination of fiscal and monetary policies to address deficit reduction, as they have an eye to structural issues.

They are trying to reduce spending and public programs that are focussed on current consumption and thus arguably not contributing to future economic growth. Also, they are reducing certain corporate tax rates, increasing incentives for investment, and trying to promote activities that have what we would call high multipliers to economic growth - all so that the future state of the U.K. economy will be, if all goes according to plan, in a much more stable and a much more competitive position.

We think the U.S. could learn from the U.K. in this regard. To achieve meaningful economic growth in the U.S. over a secular horizon, we strongly recommend a combination of revenue-side and expenditure-side changes in policy that are structural in nature. In our view, a growing percentage of U.S. expenditures are income transfers to the household sector that do not address the long-term structural issues of high unemployment and a dearth of job creation.

David Fuller's view Good points on consumption - tell it to a certain Archbishop who has been in the news recently.