Keeping in mind the above assumptions and circumstances following are the key projections that are likely to come across the path of Global Economy.

  • The size of Governments and the cost of maintaining them are going to increase substantially worldwide.

  • The experiment of trying to solve the problem of debt by taking on more debt is going to fail.

  • The Governments are going to engage in protectionism policies to protect their own economies.

  • The Cost of Borrowings of Governments are going to go up as their respective fiscal situation worsens.

  • The Governments will use every trick to squeeze out maximum tax revenue from businesses able to make profit or employees earning high incomes.

  • The Governments worldwide will be forced to curb the risky trading practices of the banks and financial institutions after the next credit crunch and market crash. Strict rules too will be laid down for derivative trading to curb speculation.

  • The banks will revert back to making money by lending to businesses and consumers under strict rules. They will be stopped from using public savings to trade in exotic and risky financial products.

  • There is going to be a sovereign default of debt of a country, the rescue of which will not be managed. This will trigger a chain of defaults across the global markets and the credit markets will freeze up again as happened in the period Oct 08 – March 09. This time it will take much longer to thaw as the ability of Governments to rescue will be limited.

  • There will be a rush to buy US Dollars as safe haven. The problems of US are well documented and observed. There will be major financial problems emerging from economies like U.K., Japan, Eurozone countries, Middle East etc. which will come out suddenly and dwarf the ones in the U.S.

  • There will be a sharp fall in stocks, commodities and property markets as soon as the world realizes that the economic recovery or bounce is not sustainable. The fall is likely to be more severe than what was seen last year.

  • We are going to have years of stock and commodity markets going down with occasional rallies in them whenever there is a restocking GDP bounce.

  • A no. of banks worldwide will collapse due to the losses on loans on credit cards, autos, residential and commercial property etc. Also the banks will have to forego loan principles as the assets they hold as collaterals continue to fall in value.

  • The consumers and businesses will keep on de-leveraging till their loans can be serviced with their lower earnings. This is going to hit business profitability hard.

  • Making a living is going to be one of the biggest challenges to a vast majority of world population. Living within ones means will be back in fashion as compared to carefree expenditure ways of previous years.

  • There will be mass protests against governments on small issues which will act as a trigger for venting out frustration of the common citizen towards their daily struggles. The governments will find great difficulty in controlling their countries in times of social unrest.

  • The developing countries face a bigger probability of facing social unrest because the developed countries have in place a social security system whereby they take care of the basic needs of the poor and unemployed citizens. Any such social security system is absent in the developing countries like India and China.

  • The US dollar will continue to be the world’s reserve currency.

  • Debt will be considered the worst four letter word.

  • We have entered a phase of worldwide deflation last year whereby the credit outstanding will shrink faster than speed at which the Central Bankers can print money. Moreover the consumers will not be willing to take on more debt for consumption even if it is available for free as their attitudes towards debt has altered for the foreseeable future.

  • There is no known cure for deflation in the financial community otherwise Japan wouldn’t be moving in and out of deflation 20 years after their credit bubble burst.

    Invest Wisely

    By Akhil Khanna

    I am an MBA Finance from the University of Sheffield, 1992 and have more than 15 years of experience in the field of Financial Management. I am a keen student of the Flow of Money around the World and enjoy studying the fields of Currencies, Stock markets, Commodity Markets and Bonds.