The High Risk Scenario in the Global Economy

Abstract

The use of scenarios to depict forces of potential risk is demonstrated by economists alarmed by the imbalance between the debtor US and its creditors among Asia-Pacific central banks. One credible, if contested, pessimistic scenario until 2010 focuses on US debt, current account and government, which in the early 2000s had sustained growth led by consumer spending in the US and English-speaking countries. The crisis scenario over the current account deficit challenges the influence over risk thinking of alleged conventional wisdom based on favourable US economic performance data, IMF optimism about leading economies' future growth, and the questioning of the deficit itself as important and dangerous. The emerging interdependence of the US and China casts doubt on the feasibility of the radical economic and political changes that are needed to avoid a crisis that could seriously damage the global economy. Active preparation of risk management against the eventuality of a serious economic upheaval must weigh contested views of probability against less doubt about the severity of the damage if it were to occur.