One year after Black September into the post Lehman World

In hindsight, if one introspects on the events of Black Septemeber, it all seemed like an extraordinary response to an extraordinary situation, as the extent of the globally coordinated bailout and rescue packages in the form of fiscal and monetary measures and direct injection of money , was truly unprecedented. So was the morphing of the G-7 into the G -20 during that turbulent period and the importance of China as an economic power so much so that when Shanghai composite sneezes, NYSE catches a cold.Hence it is all the more imperitive to not only correct the global imbalances , but to eventually decouple global growth from the US and Europe centric approach.What outline the new financial landscape which emerges from the detritus will have , and what kind of new financial architecture will govern the new drastically deleverged financial sector, is a matter of conjecture. Most of the developed nations, with the US the most, ran up enormous deficits in the process of freeing up frozen credit markets and injected vast amounts of liquidity into the system in a desperate bid to avoid a total collapse of the system and fight off deflation. For once, this process, though untested, seemed to work and frozen credit markets have thawed a bit , but to get the confidence back to the earlier levels , will anyway take time as the extent of the malaise was too deep and built up over a long period of time.The genesis of the problem was a result of global imbalances in the form of US China trade between builidng up to unsustainable levels, of which the explosion of the crisis culminating in the collapse of Lehman was only a symptom of a larger problem. Now, these measures seem to have averted a total collapse so much so that the arrest of the fall from the edge of a precipice was treated with a sigh of relief, and economists seem to be looking at every bit of positive news in the form of 'green shoots' to bolster sagging confidence in the system. The case for decoupling is all the more imperitive now than ever before as the effects of the stimulus packages have had varied impacts worldwide. The US continues to be struck in a deflationary mode inspite of having near zero interest rates and extraordinary amounts of liquidity sloshing around looking for a place to park. ( the replacement of the yen carry trade with the dollar carry trade is a testimony to this). The explanation that the US has a 5% of GDP in overcapacity in the economy precludes any risk of inflation for the next two to three years,and hence any growth. Any economist worth his salt will testify to the fact that , it is impossible to accommodate growth without igniting inflation which India and China are already experiencing as a result of the 'let public finances be damned' approach to the crisis. For the US it is is between the devil and deep sea, if at all growth (which feels like growth happens anytime soon. And if it happens, will it risk snuffing it out by increasing the interest rates, as the economy still appears very vulnerable. I feel the Fed will persist with the near zero interest rate for some time to come as they have no other option.