Heaven or hell?
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Heaven or hell?

Something very strange is happening with the world economy.

The US stock market continues to rise (or, at least, refuses to crash) despite blatant comments from the chairman of the Federal Reserve that stock prices are too high.

French and German bond yields are almost identical, despite the consensus that there is at least at 30% or 40% chance that European monetary union will not happen on time. In Japan, money is almost free (the discount rate is only 0.5%) but the economy is about to decline again after only a short and weak expansion. Spreads on emerging markets debt (and on First World sub-investment grade corporate debt) have fallen to unprecedentedly low levels.

There are two possible explanations for this. One, the rules governing the way the world economy works have changed. Don't mock this possibility: the fundamentals ­ sustained low inflation, unprecedented global flows of capital, rapid advances in technology, big increases in savings ­ are undergoing a major shift.

The second explanation is that a major crash lies ahead. The possibilities are not hard to envisage: an emerging country defaults, the US stockmarket corrects 30%, the Nikkei in Tokyo falls with it, bringing down a major Japanese bank...

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