The 'New Normal': Challenging Times for the U.S.

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>> The natural response to the market rally of the past two months was to sigh in relief. Maybe the nightmare is over. Maybe, just maybe we've paid our dues, gotten the message about risk, suffered through the exception that proves the rule, and now can we please go back to normal? In the normal world the US economy grows at three percent. The US is the world leader in economic might. And in the long run, US stocks return about six percentage points above inflation. But maybe that's not normal anymore. The new normal is a phrase coined by Pimco's assumed spelling CEO and co-chief investment officer Mohammad Alerian assumed spelling. And it refers to an extended future of slow growth, especially in the US and the west, and a shift in economic leadership to developing nations. He's been saying pretty much the same thing for a while now as he did in an interview here at moneywatch.com. His argument was that the first nations to recover from this crisis will be the creditor nations, the net savers, not the country's hobbled by outrageous structural deficits and foreign borrowing. That means Asia's up first obviously, not us. And so far LRA is looking pretty good. As the world recovers its appetite for risk, the Chinese and Indian markets are soaring. Now that doesn't prove that the new normal is here to stay. Any declaration of a new era of risks sounding like folly a few months later. In a way it's the ultimate statement of it's different this time, and those are usually dangerous words. You certainly don't want to fling all your money into foreign stock funds or ETS, let alone emerging markets, even if you buy Alerian's thesis. But look around. The Dow is still off forty percent from its high, six million are collecting unemployment, taxes are fated to rise, regulation is set to tighten, GM is bankrupt, AIG and Fanny Mae are essentially wards of the state. We won't see the kind of debt-fueled spending that we once saw from the American consumer for a long, long time. The old normal looks like something we'll only return to in history books. And if you're looking for a story as to what comes next, the new normal is as good as any you're likely to find.

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==== Transcribed by Automatic Sync Technologies ====