A financially induced recession

Next year, the world economy will shrink. Only Europe will have moderate growth. Wealth destruction will produce a growth recession in the US. Japan will continue to emulate an economic black hole in the middle of a time warp. Emergent economies' growth will be negative.

Lousy economics destroyed Asian and Russian financial markets. But now emerging-market contagion will be a financially transmitted disease. Rich countries will be infected by financial flows more than by trade flows.

Vast swathes of wealth and capital are being destroyed in the global financial system by the collapse of emerging economies. The banking systems of many emerging countries have been wiped out. Those of others, like China, are bankrupt and waiting to fall.

It's no news that the Japanese financial system is a corpse. Whatever they say in public, European banks are also going to have a hard time lending strongly into a recovery. And...