Just read a turbulently absorbing article by Simon Johnson, the British-American economist. He currently is the Ronald A. Kurtz Professor of Entrepreneurship at the Sloan School of Management at MIT. He has also been a Professor of Economics at Duke University's Fuqua School of Business. From March, 2007 through the end of August, 2008 he was Chief Economist of the International Monetary Fund. What follows is taken from material that was the basis of Professor Johnson's testimony before the Senate Budget Committee.
Despite all the statistics that might lead one to believe that economic recovery is in progress, these hide a brewing debt crisis in Europe. While smaller countries are mostly affected now, especially Greece, this could easily spill over to the United Kingdom and thwart European economic growth, causing the Euro to weaken, thus endangering economic growth worldwide.
While some European efforts are continuing in order to minimize the debt calamity to Greece, and to keep the damage from spreading to other countries, they are seen as too little, too late. The International Monetary Fund is not viewed as capable of playing a strong role for now. The PIIGS group of nations, Portugal, Ireland, Italy, Greece and Spain, will all be affected by strong pressure from speculative efforts against their credit. Because of the reluctance by their more powerful European counterparts to step in, PIIGS' economic weaknesses are being exploited by speculators.
Basically, these speculative efforts are coming from trading through the credit default swap market. Sound familiar? This very same method of operation is what brought down Lehman and AIG, to name but two. This trading behavior is so opaque, it is difficult to assess what exactly is transpiring, the general economic risks, and the status of the participants, among other factors, which could indeed melt-down more big banks and cause a full-on European-global economic catastrophe.
Allow me to quote Professor Johnson: "Another Lehman/AIG-type situation lurks somewhere on the European continent, and again G7 (and G20) leaders are slow to see the risk." And, as in America, fiscal stimulus funds have all but been drained, thus leaving little leverage to stop the bleeding if catastrophe strikes.
So, while boom times may eventually be ahead, the overall condition of the global economy leaves a shaky foundation from which to build upon. How all of this plays out is clearly uncertain. There are simply too many factors and unknowns to forecast the future other than in what-if terms.
Any way you cut it, prognostication having to do with economies of many nations and an entire world is dicey. But the links between separate economies and their effects on each other and the global economy at large are clear: we're all interconnected and inter-affected.