To Gray Badger:
We live, economically, is a highly leveraged and globally interdependent environment. I have no doubt that some or all of this will come to pieces together before the end of the 4T. How will it get put back together? That’s for the Xers and Millennials to figure out.
What I worry about most is a (b) the advent of a serious recession in the EU, (b) the collapse of a large emerging economy, (c) the economic echo of a large new act of terror, or (d) the sudden re-emergence of economic nationalism (including trade protectionism and/or investment barriers), which may happen in the context of the war on terror or in efforts to prevent nuclear proliferation. Never before in our history, not even in the decades just before WWI, has the world been so dependent on international flows of goods and capital. What’s more, since the late 1990s, the net flow of capital has been from developing countries to the developed countries. Today, this is on the order of $800 billion yearly, featuring most prominently the purchase of U.S. federal debt by China.
What happens if China succumbs overnight to rising class- and corruption-fed tensions? Historically, China has never been an “open” and liberal society for long without such sudden reversions. What if the EU falls to pieces under the strain of economic hardship. What if actions against Iran triggers global jitters—or, in reverse, if something Iran does makes western investers nervous.
All of this makes me nervous.