Sweet Orange

We may have reached the bottom but there will not be a leveraged world in the future….Growth in the old model probably will not be reasonable growth in the new model.
–Bill Gross  (Mary Ann Milbourn, “Boom times behind us, says Pimco bond king,” The Orange County Register)

According to Bill Gross, Managing Director of Newport Beach’s Pimco (the world’s largest bond fund), the fundamentals of our economy are changing, and we should not compare the dynamics of this recession to past recessions. Because of these changes, Gross sees the following as part of our economic future:

• The 3 percent to 4 percent growth that we got use to during the last 20 years is a thing of the past; instead, expect 1 percent to 2 percent growth for the next 5 to 10 years.
• Consumers will save more and spend less.
• Business will take less risk.
• Government regulation of business will be more prominent than it was during the last 20 years, and this increased regulation will to be the case for the next 20 years.
• Governments will enact new trade limits.
  

Meanwhile, Federal Reserve officials are predicting upcoming growth of 2.2 percent to 3.3 percent. And Fed Reserve Chief Ben Bernanke told the House Financial Services Committee that analysts expect growth in 2010, but even at 3 percent growth, unemployment will most likely still be above 9 percent. (”Bernanke says jobless rate may stay over 9%,” Bloomberg News)

Economist Alan Beaulieu, president of the Institute for Trend Research, had some opinions that are similar to those of Gross:

If you’re holding your breath waiting for 2007 to return, you die. We’re not going back there. We need strategies for a new climate of diminished growth.

He also states:

We don’t think the U.S. returns to sustained growth until after 2013.

Even then, in some cases, Beaulieu does not expect to see 2007 prices for 15 years, and housing might take even longer.

In other words, the old rules are gone; the dynamics of our economy are in for some new rules.