"You need a shock-and-awe approach to the banking balance sheets," said El-Erian, whose firm operates the world's largest bond fund. "You cannot do this through multiple rounds because people lose confidence."
A four-pronged approach needs to happen to restore confidence, he said: Private capital must begin flowing; banks need to start lending; the government has to provide capital guarantees, and bad assets must be lifted off balance sheets.
"It's not going to be perfect, it's not going to be easy, but the alternative is we're going to continue to look at a morphing crisis," El-Erian said.
He painted the crisis in stark terms, saying that if the proper steps are not taken things can get significantly worse, and said the nationalization of banks is likely.
"If you define nationalization as ownership and control by the government, unfortunately we're going to see greater ownership and greater control, yes," El-Erian said.
Looking at the dismal jobs numbers that came out Friday, El-Erian said, "It's telling you in a very clear and loud manner that we are in the midst of something very different. It's more than just a synchronized and severe global recession. It's more than just a banking system that's not functioning."
"People are going into preservation mode and precautionary mode. Even those who can spend are not spending and that is a major concern going forward."
Getting out of the current funk will require deliberation action by the United States, he said.
"The rest of the world is looking to the US for leadership," he said. "They want the US under President Obama to help the world get out of this, and the US needs to do it in an internationally coordinated fashion."