“…No dramatic breakdown. Just a new framework that is gradually taking shape. In the end, that might be more disruptive than an unexpected crash. because crashes result in obvious reactions. Central banks step in. Governments work together. Markets eventually stabilize. On the other hand, over time, rule changes modify incentives. Businesses make investments in different ways. Trade between nations varies. Investors reevaluate what appeared to be permanent.
As this develops, there’s a sense that the world economy has entered a transitional stage, continuing to grow and function while operating in increasingly strange circumstances.
Growth is ongoing. The markets are still open. Cross-border capital flows. However, the underlying presumptions of the previous generation of economic growth—stable monetary policy, frictionless trade, and ever-increasing globalization—are gradually being replaced by new ones.
Furthermore, the next global shock might not appear on trading screens as a panic. It might just appear to be a rule change that everyone gradually comes to understand has already occurred…”