Is the "new normal" disaster prone?

The "new normal" view of the global economic environment has focused on lower growth in the developed world, yet the "new normal" may also be a period of greater potential disasters. Current IMF forecasts call for the developed world to grow at 1.5 percent for the near-term and then pick-up to 2.5 percent in the 2104-17 period. Emerging markets are expected to do better, but here too the growth rate seems to be slowing. Some may argue that there needs to be more aggregate demand from developed countries but there also is a sense that structural changes are needed reduce dependency on cheap money. What is scary is that we can face more disasters in this new normal environment.

Robert Barro has researched disasters which he calls a 10 percent decline in GDP per capita. His research shows 58 disasters in the 20th century. Most disasters were surrounding the Great depression and the post war periods. Only two of these occurred in the last half of the century. The last half of the 20th century was the exception not the norm. The 21st century could be more normal which is included in the new normal. This more normal period may include more disasters.

If that is the case, the switch of pensions to fixed income from equities makes sense. The diversification into other asset cases and out of equities also makes sense. The general focus on principal protection and not yield is normal. The desire to hold government bonds at negative yields is normal. 

This will be a strange new normal world.