In July 2007, I predicted in this newspaper a stock market collapse. Last year, I warned that the euro zone was structurally untenable, of simmering Middle East tensions, and that the economies of China, Japan and the euro zone would dip. They did.
Ahead, expect continuing turmoil spiced by flights to safety, beggar-thy-neighbour policies and monetary stimulus inducing inflation. To appreciate why, let's spin the globe.
The euro zone is doomed in its present form. Austerity measures will elicit economic contractions and demonstrations. German voters, who complain still about the costs of German reunification, will soon realise that Greece will be the first, not the last, to be rescued. Rather than a central governing authority, a far more likely outcome in the euro zone is a group of sub-currencies that float within ranges, beginning with a euro-drachma. It will not be a smooth transition, and there'll be turmoil when the zone is dismembered.
In the US, politicians and legislators failed to find a way to trim government deficits. Some claim higher taxes are the answer. Others know better but lack the political will to confront beneficiaries. The truth is that US government spending is profligate. This will be admitted, but it will take time, especially in an election year. Until then, Federal Reserve chairman Ben Bernanke or his successor will accommodate with monetary easing that other central bankers will emulate via protectionist beggar-thy-neighbour policies. This will bring inflation.
If governments augment this policy with tariffs, things will get worse. Equally worrying is moral hazard inherent in the government rescues of banks, or any industry for that matter.
China is a further cause for concern. Amid a leadership transition, it persisted with self-serving mercantilist policies that slowed the global economy as domestic asset bubbles ballooned. Investment curbs spurred families to buy flats and help sons attract scarce wives, and there will be few mortgages to walk away from as prices fall. Idle steel mills, empty convention centres and malls, flightless airports and entire ghost cities attest to misguided stimulus of investment, with another banking crisis already on the cards.
