The next ten years will be perilous. As much as it did the Aughts, one word will define the Teens: volatility. In my opinion there are three large risks to the world economy over the next ten years:
- Cascading currency crises
- Cascading sovereign defaults
- Geopolitical conflict
These risks are all interrelated, so the likelihood that one occurs and the others do not is slim. The sad fact of the matter is that as we enter the Teens, we have no comprehensive way to deal with the debt overhang that is now plaguing the public sector. Of course, a private sector that wasn’t overleveraged could conceivably shoulder the load and grow the economy by leveraging up and relieving the strain on the public sector. Alas, we are all tapped out.
I personally expect that quantitative easing will continue intermittently (causing great volatility in the process) until some currency or government blows sky high. Then the real fun begins.
Unfortunately I think your predictions are right on the mark. In the advanced economies, claims on wealth seem to be growing at a much, much faster rate than the underlying capacity of the economy to generate wealth, yielding destabilizing imbalances. In my view, the major event of the decade will be the implosion of the China bubble, which must come sooner or later. China sustained rapid growth through the global downturn by opening the monetary floodgates, and we all know where that strategy leads. The economic imbalances in China are probably already the most dramatic in the world.