What were the defining characteristics of the old normal?
Gross: In order to talk about the New Normal it is a good idea to step back and review what we mean by the old normal. For instance, how long did it exist? It may be that history books in the future will say that it started as far back as Bretton Woods, shortly after World War II, or at least following Bretton Woods II in the early 70s, but in any case it’s certainly existed for the past 20 to 25 years. Economists, including Fed officials, have described it as the Great Moderation, and investment managers have dubbed it Goldilocks. At any rate, it was a period characterised by declining interest rates beginning around 1982, a transition to low inflation beginning in the late 70s, accelerated use of financial leverage, increasingly complex financial innovation and loose regulation. All of this led to a period of reliable growth of around 6%–7% nominal GDP. Importantly, this consistent growth led to appreciation of most assets: bonds, stocks, real estate and commodities. The key to this
