"We've seen a crisis start in a country—Greece—become regional, impact the whole of the Euro zone and is on the verge of truly going global," said El-Erian, CEO of the world's biggest bond fund.
He said the debt is a "transmission mechanism to go from country to region to global. So we should take this very seriously."
S&P 500 banks fell financials fell nearly 5 percent as investors worried about the financial system freezing up again, similar to what happened when Lehman Brothers collapsed in September 2008.
One trader who spoke on condition of anonymity said fixed-income desks in Europe shut down early for the day and that "European banks are halting lending now."
Similarly, the US faces a debt burden that, while not as large a percentage of gross domestic product as Greece, is approaching that level and could spark major problems domestically.
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