Pimco’s Gross Proves Summers Wrong as Selloff Shows ‘New Normal’ Is Real
By Sree Vidya BhaktavatsalamBill Gross was right after all.
Former White House economic adviser Lawrence Summers andChristina Romer, the former chairman of the U.S. Council of Economic Advisers, were among critics who challenged a view promoted by Gross’s Pacific Investment Management Co. that the U.S. economy may be headed for a long period of below-average growth and high unemployment, a scenario known as “new normal.” Money manager Kenneth Fisher called the concept“idiotic.”
Now Gross and co-chief investment officer Mohamed El-Erian, who coined the term more than two years ago, have been vindicated by the U.S. Federal Reserve, which said yesterday that the economic recovery is “considerably slower” than anticipated, following the biggest stock market loss since December 2008. BlackRock Inc. (BLK) co-founder Laurence D. Fink, who in January said he didn’t believe in the “new normal,” is forecasting growth of 1 percent to 2 percent for much of the decade.
“A lot of the new normal characteristics have played out,” El-Erian, chief executive officer of Newport Beach, California-based Pimco, said in an interview. “Some people confused new normal with fatalism, but the intention was the opposite. There was the hope that policy makers would recognize that there are structural responses they needed to embark on.”
Comment: The "new normal" is not pleasant, yet the sooner one gets used to it and adapts to it, the better. There is no escape from reality. Illusions are good when times a good. Illusions are bad when times are bad. Now, as times are bad, let's get rid of our illusions.