The "normal" of tomorrow

How will the new normal of tomorrow look like ? The new normal will be shaped by a confluence of powerful forces—some arising directly from the financial crisis and some that were at work long before it began. Lets look at some features that could probably define the new normal: 

• There will be lesser financial leverage in the system. This reduction in leverage has been fueled by two factors : increase in debt due to financial innovation & the credit bubble fueled by irresponsible risk taking.  Business models that rely on high leverage will suffer reduced returns. Companies that boost returns to equity the old fashioned way—through real productivity gains—will be rewarded.
• Another defining feature would be the expanded role for government. A good outcome of the crisis would be greater global financial coordination and transparency. A bad outcome would be protectionist policies that make it harder for companies to move capital to the most productive places and that dampen economic growth, particularly in the developing world.

It was clear much before the crisis that US consumption could not continue to be the engine of global growth. Consumption depends on income growth, and US income growth since 1985 had been boosted by a series of one-time factors—such as the entry of women into the workforce, an increase in the number of college graduates—that have now played themselves out.

Companies seeking high rates of income and consumption growth will increasingly look to Asia. Through it all, technological innovation will continue, and the value of increasing human knowledge will remain undiminished. For talented contrarians and technologists, the next few years may prove especially fruitful as investors looking for high-risk, high-reward opportunities shift their attention from financial engineering to genetic engineering, software, and clean energy.