Calls for a fairer system will not go away. If anything, they will spread and grow louder. The West has no choice but to strike a better balance - between capital and labour, between current and future generations, and between the financial sector and the real economy.
When the world biggest debt investor (PIMCO) calls the world biggest debtor (the US Government) Charles Ponzi, we are up for trouble …
See November investment outlook by Bill Gross: Run Turkey, Run.
Well, let me be the first to acknowledge that the best route to prosperity is the good old-fashioned route (no, not the dated Paine Webber road map utilizing hoped for paper gains of 12%+) but good old-fashioned investment in production. If we are to EARN IT – the best way is to utilize technology and elbow grease to make products that the rest of the world wants to buy. Perhaps we can, but it would take a long time and an increase in political courage not seen since Ronald Reagan or FDR.
Our “New Normal” two-word duality seems to resonate more on the “normal” than the “new” to economists whose last names aren’t Roubini, Reinhart, Rogoff, or Rosenberg. It’s as if “R” has been eliminated from the financial alphabet, and “new” from investors’ dictionaries worldwide.
Compared to what the world has known for the last 40 years, this situation results in a highly unusual configuration of growth, debt and deficits; it raises legitimate questions about the prospects for self sustaining private sector recoveries in industrial countries (and the related ability to grow out of excessive indebtedness); and it loudly illustrates the limitations of cyclical policy responses and international coordination, and associated problems with unintended consequences and collateral damage.
The essence, or the genius of banking, not just now, the last century or the century before that, but since time immemorial, is that the public’s ex-ante demand for assets that trade on demand at par is greater than the public’s ex-post demand for these types of assets.
Our sense is that the importance of the shock to public finances in advanced economies is not yet sufficiently appreciated and understood. Yet, with time, it will prove to be highly consequential. The sooner this is recognized, the greater the probability of being able to stay ahead of the disruptions rather than be hurt by them.
The policy mindset really, really matters.
In a new “normal” world growth will be half of what it was, profit growth will be half of what it was and returns on almost all assets — including bonds — will be half of what we’ve grown used to.
