Great new Jeremy Grantham quarterly note out from GMO. Highlights include a lucid discussion of what I’ve been calling “the new normal”, what a post-crisis world looks like in terms of leverage, debt, corporate profits and growth. He thinks we need to halve private debt speedily, or risk the U.S. falling into a Japan malaise. Trouble is, there are few expedient ways to do it, other than wiping it out or inflating it away. (He also doesn’t like most of Obama’s financial markets picks, so he has that going for him.)
Highly worth reading.
Under the shock of massive deleveraging caused by the equally massive write-down of perceived global wealth, we expect the growth rate of GDP for the whole developed world to continue the slowing trend of the last 12 years as we outlined in April 2008. Since this recent shock overlaps with slowing population growth, it will soon be widely recognized that 2% real growth would be a realistic target for the G7, even after we recover from the current negative growth period. Emerging countries are, of course, a different story. They will probably recover more quickly, and will continue to grow at double (or better) the growth rate of developed countries.