I followed a link on economist Mark Thoma’s blog to one of his columns in the Fiscal (not Financial) Times and noticed this cheery and encouraging article in a sidebar:
http://www.thefiscaltimes.com/Issues...5E41F9E4C&_z=z
Now, More Bad News: The ‘New Normal’ is Here to Stay
Washington and Wall Street are coming around to the idea that the economic future we’re stumbling towards will be far less generous from the normality we long for. The “New Normal” — a disarmingly benign term coined by Mohamed El-Erian, co-chief investment officer of the big California investment firm Pimco — envisions a future of sluggish growth, international discord, increased uncertainty and minuscule returns on capital. Government revenues shrink while spending remains high.
The 8 percent historic returns projected into the future by many corporate and state pension funds (and those retirement calculators offered by your 401(k) administrator) never materialize. The fiscal implication: Pension funds that are a trillion dollars underfunded at 8 percent returns actually face shortfalls two or three times as large. And the mind-boggling $6.6 trillion Retirement Income Gap — the difference between what the nation has saved and what it should have saved, as calculated by a coalition known as Retirement USA — may actually be understated.
Households went into the crisis with more debt than at any time in U.S. history. They have to pay that load down, either by saving more or by defaulting. Neither is conducive to economic growth.
Our labor force will stagnate as the baby boomers retire and the U.S. population’s growth rate slows to a crawl. While dramatic increases in productivity could theoretically take up the slack, that may be too much to ask of
a generation whose education, for the first time in American history, ranked in the bottom third of developed nations. And
who, for the first time, went to college in lower proportions than their parents.
In an Institutional Investor essay called Paradise Lost, economist Nouriel Roubini and political risk consultant Ian Bremmer argue that 2008 cost the U.S. and other advanced economies the ability to set the global agenda. “The trend is most visible,” they write, “in the transition from a G-7 to a Group of 20 model of international decision making which includes influential and deep-pocketed developing countries like Brazil, China, India, Saudi Arabia and the United Arab Emirates. Without these countries, multilateral efforts to solve pressing transnational problems wouldn’t have much credibility. But getting this varied group to agree on anything will be profoundly difficult.” In the resulting power vacuum, protectionism will rise and the global free trade that fueled a half century of international growth will recede.
Summing up the implications of the New Normal, El-Erian’s boss, Pimco Managing Director Bill Gross, writes in his October newsletter, “The unmistakable fact is that future investment returns will be far lower than historical averages … There is no 8 percent there for pension funds. There are no ‘stocks for the long run’ at 12 percent returns.”
All cheered up now? Go out there and deleverage!
The New "Normal"
ONLY HERE
