The new normal - The McKinsey Quarterly - The new normal - Strategy - Strategic Thinking

Quick look at the “new normal” by McKinsey. Not a lot of detail here but in the spirit of the article, here are a couple of my “new normal” predictions;

1) The economy will be more slow burn. With (somewhat) higher savings rates and (somewhat) lower consumption, the economy will be on a slower, but hopefully more sustainable and less bubbly) path

2) I don’t want to overstate the higher savings/lower consumption in the US. Yes, there will be some changes in consumption patterns but it won’t be extreme. The US is not going to turn into Asia-type supersavers and consumer credit will trickle back to fuel consumption.

3) Western/Ango-Saxon/whatever you want to call it capitalism won’t die. It won’t even be on life support. Yes, it may evolve somewhat. Yes, there may be more regulations. But the core principles will remain

4) I hope I can say the same for globalization. I don’t think there is great long-term threat to globalization but there may be bumps


The new normal - The McKinsey Quarterly - The new normal - Strategy - Strategic Thinking

Catching up with moral hazard

In the U.S., we recently saw the unprecedented opening of the Federal Reserve discount window to nonbanks. By definition, unprecedented events set a precedent. And regardless of whether that window is officially opened or closed, the market now assumes that it will be open if necessary on an ad hoc basis.

Interesting OpEd in today's WSJ from Vikram Pandit of Citigroup. As he highlights, the moral hazard has already been established, the Fed will bail out failing institutions that threaten the entire financial system. We now need regulations to manage that moral hazard.

Toward a Transparent Financial System - WSJ.com

The new paradigm: Bubbles

Basically this is MarketPlace article on an upcoming Harper's article relates back to what I said here, about a new bubble paradigm overtaking the economy.

While the Asimov and Frankenstein references in the article point to a woeful misunderstanding of great sci-fi literature, the point is clear... we're entering into a fast and loose economy of blowing bubbles, rather than sustainably creating wealth.

The price of cheap money (see Fed cut) to fuel unreasonable growth (see past dot-com, housing bubbles), is an economy that will continually run through rabid big bang and big crunch phases, sort of like viewing the entire history of the universe in fast forward at a Kagillion time speed.

Fed and a new paradigm?

As usual, the Big Picture succinctly puts into words what many of us may be thinking... is it really the Fed's job to be bailing out the markets? I'm hurting as much as the next guy with the markets tumbling, but it strikes me that much of the cause of the current pain is due to too much meddling in the past (excessive policies on both the monetary and fiscal fronts). Therefore, I'd be willing to go through some pain now to ensure smoother, more sustainable growth in the future.

We're had at least two bubbles in less than a decade... tech and housing (and I suppose an emerging market bubble that is biting me in the ass right now). So maybe this is the new paradigm; in search of increasingly more rapid growth, we need to also be prepared for more frequent bubbles and their subsequent bursts.



The Big Picture | Is the Fed a Paper Tiger?