Debt

An Investment Guru Explains The 'New Normal'

Everybody's talking about the "new normal." On the investing shows, this is shorthand for an era in which returns on stocks and bonds are lower than they've been in the past.

But Mohamed El-Erian, the bond-fund CEO who coined the term, says it goes much deeper than that.

Today on All Things Considered, El-Erian tells Planet Money's Adam Davidson that the new normal includes changes to the fundamental structure of the global economy:

The world of yesterday was a world of tidy categories. On the one hand you had industrial countries, advanced economies. On the other hand, emerging economies.

The first were the core of the system they held the system together. The second, emerging economies, were at the periphery and tended to be crisis prone.

The financial crisis changed that, as China — an emerging economy — served as a key stabilizing force in a global financial crisis that started in the U.S.

The shift has continued this year, as industrialized countries like Greece, Spain and Portugal have found themselves in the kind of dicey debt situation traditionally associated with developing countries.

In the new normal, El-Erian says, the traditional major players like the U.S. and Germany will have less influence. And the likes of India, China and Brazil will have more.

The shift will be turbulent. But, El-Erian says, the end result will be a more stable global economy.

"It is better to have many locomotives of growth in the world," he says.

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