Fear lingers as worry of a double dip fades. What can the Federal Reserve do? The past quarter brought numerous gloomy headlines. The specter of a double-dip recession, a depression or inflation loomed.

Each day seemed to bring more negative news and reason for gloom. Not surprisingly, markets reacted, and after a strong July, equity markets dipped in August to an overall minus number for the year. It did not help that investors withdrew about $34 billion from equity mutual funds for the year and placed $32 billion into international and emerging market funds, or that the “flash crash” of May 6 caused many investors to wonder if they were playing with a stacked deck.

Job losses continued to mount last month with the unemployment rate hitting 9.6 percent. The Obama administration took solace in the fact that the private sector in August added 67,000 jobs – about one fourth of the number needed to provide jobs for new entrants into the workforce.
The question the market seems to be wrestling with is: Are we about to experience a “new normal” for growth in the U.S.?

Historically, on average, the U.S. economy has grown about 3 percent per year – also about the rate of inflation. Bonds have historically returned the rate of inflation plus 3 percent, for a total of 6 percent. Equities have historically returned about 9 percent.

As every investor knows, the last 10 years have been anything but normal, and the U.S. economy seems to be growing less than normal. Is this the “new normal”? Should we expect less than 3 percent growth, or even none? Is the structural growth rate of the U.S. […]