When things return to normal. (But what’s “normal?”)
“Cassandra Does Tokyo” (a new blog in my Google reader) has a post If You Can’t Tell Who The Sucker Is…. that I deem to be REQUIRED reading. Go. Read it. Now.
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For as I consider what precisely is meant by “normal”, it seems to me that there is a reasonable good chance insofar as this IS “The Big One” (as Bridgewater Associates precsiently termed it nearly a year ago) that all these things – debt, leverage, consumption vs. income, relative asset prices – are ALREADY returning to normal, and the strategists, demonstrating the old poker joke about “if you look around the table and you don’t know who the sucker is, its you….”, simply haven’t yet fathomed the appropriate interval frame of the normality to which things are returning towards.
[snip]
… But what is “normal” for economic growth? Or what is “normal” for aggregate US consumption? Or the amount of debt a typical household can sustain? What is the “normal” leverage for a bank, or the normal return on equity o a listed company? What is a normal share of GDP for corporate profits in an economy experiencing deep recession? What is “normal” for sustainable government budget deficits? …