I know I'm sticking my neck out on this but I do believe that the world economy will ride out the present storm, bruised but not knocked out. I believe central bank intervention combined with fiscal policy will help limit the damge of the sub-prime crisis.
The critical problem today is banks' unwillingness to lend to each other because no bank is sure how badly damaged the other guy is. They will know pretty soon- once the first and second quarter results are in and the losses are accounted for. After that, things should be more normal in the banking sector and for the world economy. Remember, there is no generalised threat to world economies (of the sort posed by, say, a huge oil shock). There is a downturn in the US caused by factors specific to the US economy. That is part of the reason the impact on the world economy, I believe, will be limited.
See my relatively bullish views in the ET, Cheer up, the outlook is not so bad.
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If the inefficiencies and the excesses of the market are allowed to play through without deliberate intervention for specific political reasons, we will recover. Now, the greatest danger is the US turning inward - and deciding that China and India (and Peru and Mexico and ...) are the source of all of the problems and start restricting trade, imposing tariffs, raising taxes and pretending to help the economy ... Given my "admiration" for the people who hold the political levers, I am pessimistic ... I have never underestimated the power of the US politicos to do stupid things at the wrong time - I am hoping I would be wrong, this time.
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