Chaos leads to confusion. Look around and there are big risk floaters everywhere in the world. From inland disputes and cross-border violence to austerity measures and recessionary fears, certainly the mayhem of today is not disappearing come 2013.
Greatest of all dangers, and hence the outcome of the bedlam around the globe is the return of the evil: global financial crisis that first emerged in 2007. The chances of recurrence of the financial crisis hinge upon three broad rationales.
First, the reverberations of the original crisis four years ago are still being lamented upon, and the global meandering towards recovery is still patchy and slow. Generally speaking, governments and people are finding it difficult to fish more funds as high debt levels still burden households and treasuries, alike.
Look what happened to Royal Bank of Scotland, Citibank and UBS: global banks are under siege due to tight local rules and cruel regulatory climate.
Secondly, the fear of Keynesian liquidity trap abound the world scenario. By the looks of it, the monetary policy has peaked: the Fed keeping the interest rate around the current low level of zero to 0.25 percent, ECB bringing down the deposit rate and Bank of Japan sticking to its close-to-zero policy rate.
And in such a situation, increasing the money supply, as in the case of quantitative easing, will fail to stimulate the economy rendering the monetary policy ineffective.
Austerity can be painful, and this along with its political repercussions is the third stab to the global economy. Global elites, as in the case of the eurozone debt crisis and the US fiscal cliff threat, are struggling to jump out of their fiscal holes through sharp spending cuts that dampen any hope for economic uplift.
Ask the Greeks; austerity options of raising taxes and cutting spending has pushed Greece into recession but the government still needs to borrow just to pay wages. At the same time the political weakness associated with the austere moves of the governments can crumble the euro and mark the start of another financial crisis.
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