Welcome to "the new normal."

That was the message delivered Thursday by Robert E. Rubin and Mohamed El-Erian, two of the most prominent figures in global finance, at the Financial Times View From the Top conference in New York City.

During a discussion with Martin Wolf, the FT's Chief Economics Commentator, Rubin, Co-Chairman of the Council on Foreign Relations and a former US Treasury Secretary, and El-Erian, CEO and Co-CIO Pimco, the world's largest mutual fund, painted a picture of a global economy that has crossed a Rubicon of sorts. In the West, at least, economic growth may not return to earlier levels, at least not any time soon.

A Tough Spot

"I think we're in a very difficult situation," Rubin said. "This is the most uncertain, and most difficult, set of circumstances in my adult lifetime."

The former Chairman of Goldman Sachs expressed alarm about the fiscal situation in the United States and urged the Obama administration and Congress to embark on a course that will address it within the next two or three years. "It is imperative that we get back on the right fiscal track, but there has to be room for public investment in critical areas," Rubin said.

Rubin said that he believes that the US intervention in the financial system has been "effective" and that financial regulatory reform was "sound." Still, he said, "there is no question there is strain between the business community and the administration."

Despite calls for another economic stimulus, he doesn't favor that path, because it could adversely impact business confidence and market psychology. Also, there's no guarantee it would work, Rubin said.

Rubin says he doesn't favor extending the Bush-tax cuts for those making over $250,000 per year.

Sluggish Forecast

For his part, El-Erian said his firm Pimco has placed a 55% probability of continued sluggish growth – eg. 1.5-2% increases in GDP, well below healthy growth rates – and high unemployment. He places a 15% probability that "we are surprised on the upside." Finally, he places 30% probability of a double dip recession, in which the economy returns to negative growth.

Both Rubin and El-Erian highlighted the tough political choices facing US policy-makers seeking to dig the economy out of its hole.

"The politics of austerity are proving to be very difficult," El-Erian said. "What is economically desirable is not politically feasible." Further exacerbating the problem, he said, is the fact that "policy outcomes have fallen short of policy expectations."

Asked about whether investors should be bullish on stocks, El-Erian, the world's largest bond manager, endeavored to answer the question "delicately."

"Our collective expectations of returns should be coming down," El-Erian said. "Returns are a function of the health of the economy. Returns coming from outside the US will be higher than returns coming from inside the US. The most dynamic growth is coming from the rest of the world."

Rubin declined to take a position on the question. Wolf, the moderator, said: "We are not going back to where we were in 2005 and 2006, and that's a good thing, because that was deranged."

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Major and signficant improvement in the American economy is not possible until the consumer pays down credit card debt, reduces mortgage obligations and is able to earn a living wage for a 40 hour work week. Ways government can help is to adopt policy that discourages outsourcing of jobs, invest in new technologies that would create an expanding global market, and minimize the cost of health care and education on the average citizen. Negociating with China to address our trade imbalance is also critical. So too, American banks must stop raping consumers with 30% interest charges for monies the lenders pay 2% to obtain.

October 08 2010 at 3:47 PM Report abuse +2 rate up rate down Reply

Admittedly, times are tough; only 90.4% of Americans who want a job have one. In "normal" times that figure would be around 94%. I suspect many of those in that 3.6% above the norm spend a great deal of time posting doom and gloom blogs that would lead one to believe the world is coming to an end. We don't read much from the 90%+ who are working for the simple reason they are busy making a living. We don't have bread lines and food riots in this country because there safety nets that many deride as "welfare" and "socialism" terms bantered about by many who have little understanding of the words. As for the great changes some are expecting next month, don't get your hopes too high. Mr. Obama made the same mistake of raising expectations above his level to deliver. And even if the Republicans realize their wildest hopes of gains in the Congress, they will still be far short of majorities necessary to over ride the President's veto pen.

October 08 2010 at 1:20 PM Report abuse +1 rate up rate down Reply
Robert & Lisa

Uncertain times or rather bad times? You make the call in 3 weeks... Bye bye Demoncrats.

October 08 2010 at 12:10 PM Report abuse +1 rate up rate down Reply

Wolf is correct, we are not going back to 2005 and 2006. We are going to experience worse than 1929. Can only be propped up so long.

October 08 2010 at 12:02 PM Report abuse rate up rate down Reply

There has not been a stimulus for the Private sector, that would help create jobs. I know the Unions would blast the President for that move since they believe all government money belongs to the Unions. But these are tough times and the President needs to step up and help the 75% of Americans starving. The question is, will he be willing to distance himself from the Union Stranglehold?

October 08 2010 at 11:32 AM Report abuse +3 rate up rate down Reply

You should know, better than anyone, you used to work for Goldman Sucks - how's that golden parachute working for ya, on my taxpayer dime. I am off to foreclosure court for a 1:00 appointment. Thanks Rubin, I am a widow, have no husband, no job and now no house. Was making that mortgage payment up until 10 months ago, when I got laid off. Now with millions of other people looking for a job. Bankruptcy court here I come, and with that I get to do a cram down Wells Fargo's financial rear. Oh and I just called the Attorney General this morning, cause guess what, I have a rocket docket snd robo signing legal papers.

October 08 2010 at 10:45 AM Report abuse rate up rate down Reply

As learned as these economists may be, they have failed to think outside the box. There is a silver bullet that would simultaneously jump start the US economy, create jobs, create a budget surplus, and provide countless other economic benefits. That silver bullet is nuclear power. For less than $1 Trillion, paid out over many years, the USA could go 100 percent nuclear for domestic power. This would immediately create countless jobs with skills ranging from nuclear scientists to security guards. It would end our dependence on foreign oil, as cheap nuclear energy is used to convert natural gas and virtually any organic material into gasoline. It would create a budget surplus as the USA becomes a net exporter of electricity to the entire Northwestern Hemisphere. It would end drought everywhere as nuclear power is used to desalinate sea water as needed. The list goes on and on. There is enough thorium to power nuclear reactors for the next 100,000 years. It's no-brainer. The only obstacle is our irrational fear of nuclear energy, a fear that has been carefully nurtured by the oil and coal lobbies. Once we get over that, we can usher in a near era of cheap and abundant energy, and unprecedented economic prosperity.

October 08 2010 at 9:50 AM Report abuse +3 rate up rate down Reply
3 replies to jerachrome's comment

The thing nobody in the Obama adminstration will admit toois. On November 3 when we wake up and Americans find out we have taken back our country there will be an econmoic sunami. Companies and American citizens don't trust the Democrats.In November 2009 in the township I live in (about60,000 people) , where no party has an voter advantage the Republican won all 8 offices on the ballott. It was a forecast for this year.

October 08 2010 at 8:06 AM Report abuse -3 rate up rate down Reply
Robert & Lisa

It's not uncertain times we're headed for, it's bad times unless we the people correct this disaster.

October 08 2010 at 4:36 AM Report abuse +2 rate up rate down Reply
Robert & Lisa

The one silver lining is that unemployment is highest for the poor fools who supported this idiot in the White House. Instead of blind leading the blind it's dumb electing dumb.

October 08 2010 at 4:34 AM Report abuse +2 rate up rate down Reply