Article Looks At The Long-Term Effects Of The Recent Credit Crisis

In the wake of the 2007-2008 financial crisis, there has been much discussion about the prospects for an economic recovery over the next few quarters. But an article published yesterday by Standard & Poor's says that the more important issue is: What will happen over the next few decades? The article, which is titled "The New Normal (The Future Isn't What It Used To Be)," says that Standard & Poor's believes it will be a decade or more before the world and U.S. economies can hope to grow as rapidly as they did during the half-century or so preceding the recent crisis because they will have to bear increasing burdens. These will likely include:


--High personal debt and lower wealth in the U.S., which--combined with a rebounding though still-low saving rate--will slow the consumer spending that has powered much of U.S. and world growth.

--International trade and financial imbalances that are leading to a weaker dollar and a move away from dollar reserves.
--Stricter but inconsistent financial and other government regulation.

--A global financial system that has lost much of its capital and will need to operate with lower leverage, restricting loan availability.

--More risk-averse investors (some suddenly conservative because of recent losses, others approaching retirement and husbanding their wealth).

--Fiscal deficits in many countries, especially the U.S., the deficit of which could grow larger as the retirement wave hits.

--Rising health care costs that threaten the competitiveness of U.S. companies versus their overseas counterparts.

"We expect that the world economy will recover," said Standard & Poor's Chief Economist David Wyss. "But we think it's likely that it will look different once it does." For example, the events of the past two years likely have accelerated the relative decline in U.S. economic influence, as Asian economies have continued to grow while America's has contracted. In past decades, however, the U.S. and world economies have proved resilient. So while the future isn't as bright it seemed during the bygone boom, neither is it as bleak as it seemed only a year ago.

This article is part of a special report titled "The New Normal," which also will be published in the Jan. 27, 2010, edition of Standard & Poor's CreditWeek. The special report examines how certain industry sectors and financial markets could fundamentally change as a result of the recent credit crisis.

The report is available to RatingsDirect on the Global Credit Portal subscribers at www.globalcreditportal.com and RatingsDirect subscribers at www.ratingsdirect.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to research_request@standardandpoors.com. Ratings information can also be found on Standard & Poor's public Web site by using the Ratings search box located in the left column at www.standardandpoors.com. Members of the media may request a copy of this report by contacting the media representative provided.