"In general, credit markets have not demonstrated the same sense of enthusiasm as the equity market," El-Erian said, adding corporate credit spreads are still elevated.
"I suspect technical factors are in play (in the equities market), and have been over the last few days," he added. "The weakening correlations suggest that fundamental drivers are being overwhelmed, for now, by short-term technical repositioning."
As recently as six months ago, she was forecasting that at least $2-trillion (U.S.) of available credit card lines would be eliminated by nervous bankers by the end of next year. Now she thinks she underestimated the cutback and has revised the number to $2.7-trillion. Although it's not possible to gauge the direct impact on spending by already depressed consumers, the effect is bound to be enormous.
“Since 2006, you've had liquidity coming out of the market. That's caused consumer credit to worsen. Liquidity continues to come out of the market. Therefore, consumer credit continues to worsen,” she said logically.
And the effect on the banks? “The assets on bank balance sheets are worth less and less. And they need more and more capital.”
Without doubt, more U.S. banks will fail or end up effectively nationalized. And if that's not enough grim news, there's another black hole still to come – commercial real estate. No wonder she recently opined: “It remains clear to us that core liquidity fundamentals are deteriorating at an accelerated pace.”