Speaking at FORTUNE’s Most Powerful Women Summit on Wednesday, PIMCO’s CEO Mohamed El-Erian said the U.S. economy will certainly collapse into a recession if Congress does nothing to delay or avoid the avalanche of tax increases and spending cuts that are set to kick in at the end of this year. Worse, unlike others, he thinks it will be a recession that America will have a very hard time pulling out of.

That contrasts with analysis from the Congressional Budget Office, which also predicts a recession, but says the fiscal cliff would end up lowering the nation’s debt, which could end up producing high growth rates for the U.S. economy down the road.

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El-Erian doesn’t seem to agree. He says if we go into a new recession with our current high employment rate we could have a prolonged job slump that lowers our standard of living for years to come. Some studies have shown that people who have trouble finding work at the beginning of their career end up stuck on a path of lower wages throughout their working life.

“You get close to a situation where for the first time in a very long time, our kids’ generation will be worse off than ours,” says El-Erain. “So this is really important.”

The good news is that El-Erian thinks the chance of the economy going headfirst over the cliff is less than 40%. Instead, he thinks the mostly likely outcome, which he puts at 60%, is that we get something akin to a fiscal trip, rather than a fall. That would be where the White House and Republicans in Congress strike a deal to avoid the worst of the tax increases and spending cuts, but one that stops short of a “grand bargain” in which we do something meaningful to address the nation’s long-term debt problem, which would boost confidence, and possible business and consumer spending. In that case, El-Erian says he thinks the economy will slow, but not enough to send us into recession.

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Either way, El-Erian says Treasury bonds are not the place you want to be. He said bond prices in general are inflated because investors are pricing in low growth, and a Fed that’s buying everything in sight. If one of those two situations change, such as Washington making a deal that avoids the fiscal cliff, then he thinks bond prices will fall.

“Valuations of the bond market are up here, okay, and the fundamentals are down here, right?,” says El-Erian.  “So if the fundamental starts moving, you’re going to get an interest rate adjustment that’s going to impact the bond market.”

Along with the fiscal cliff, El-Erian said he is also worried about Greece and Spain, whether China will be able to manage a soft landing and what will happen in Iran. On Europe, El-Erian says he is betting that the Euro survives but that Greece and possible one or two other countries end up exiting the currency union. He says, while a Greece exit might be difficult, it would be better than the current situation where Greece, and Spain, are not getting full bailouts, but not exiting the Euro either.

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“This muddled middle where you don’t do much of this, and you don’t want to talk about this is really problematic,” says El-Erian.

Nonetheless, El-Erian says while PIMCO in general has a culture of worrying, the outlook at the firm is not all doom and gloom these days. He says sees a scenario where things could get better for the U.S. economy from here.

“There are a set of things that could go well,” says El-Erian. “Most people don’t want to talk about those.” Perhaps tellingly, though, El-Erian didn’t spend much time talking about those positives either.

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