We are caught in economic crisis cycle.

The global economies contracted rapidly after the investment bank Lehman Brother's (2008) crash, credit spreads widened and banks became insolvent overnight. The big fear that governments had at the time was a run on banks, which could have occurred en masse; therefor the whole financial system (in their opinion) could have collapsed completely. So the collapse was adverted by massive amounts of money being pumped into the system by central banks and government intervention. This, according to some economists, say the 'actions' by central banks averted a Financial Armageddon or severe global depression.

The question is did they really advert anything? Or just delay the invertible, which may be twice the pain.

You look at the markets as a place that is broken into two things, gain and loss. It could be argued how far the psychology of gain and the fear of loss goes. But the desire to look at opportunities and prospects is what drives the whole free market. A loss is a loss, in the sense there is risk of venturing into somewhat uncharted markets. The theory would be that you avoid loss by restraining from over speculating i.e you would calculate the risk. As the gain could be substantial depending on the demand for the trade. Bubbles are then created and then deflated, a good trader knows when to buy and sell and this takes years to learn because it's the discipline of understanding what gain and loss means whether psychological or biologically driven. But the risk taking is all yours as is the potential downside (loss) and upside (gain) within the free markets.

In my opinion the markets are currently confused you can look at it from two angles, 1. that liquidity has gone back into domestic markets or 2. recent rallies have been underpinned by policy makers and central bank flunkies. After very oversold markets a rally was on the cards, but a rally stimulated by very little but political spin, in which helped the updraft of the market stock euphoria. Timed or not, it occurred within a time frame, please refer to How are the markets trading? Liquidity inflows? Green Shoots? Or market hysteria?.

The point is government intervention into the free markets has distorted the stock market (and other markets). Governments originally encouraged over speculation by the consumer and institutional trader. This was via overabundance of money or liquidity in the system, thus causing overinflated markets in every sense. It should have corrected normally (cyclical recessions), it didn't instead more money was pumped in, interest rates were artificially low and banks/financial institutions became reckless with lending (the psychology of lost and gain didn't exist per se, as easy money was available). When the market finally corrected, after the Lehman crash in 2008, the market was trying to find a bottom more particularly in stocks. The market bottom was then supported by government/central bank spending (again). So with the banks hording liquidity and the interbank credit spreads narrowing (to a point), the flow of money is no where close to what it used to be, pre 2008. It is now the tax payer that is essentially holding the whole financial system together.

But there are festering problems occurring even in the very premature talk of global economic recovery, even more absurd when some say the 'worst is behind us'. As mentioned the global economy is so extraordinarily fragile as it is held together by goverment spending and one could argue reckless spending too.

There is but a prefect storm of economic problem's occurring. Lets look at some of them:

• Stagflation has been, in my opinion, with us since the middle of 2008 when food prices spiked. It can be said that the US recession started in late 2007, despite prices declining on most non essential items. Prices rose on essential items like food and amenities. A property lawyer that I know mentioned to me that even though interest rates have fallen (somewhat) for mortgages, land taxes, insurance and property registration have increased. The simply way to look at stagflation in this recession environment is to see that a loaf of bread has increased in price, yet a Blu Ray DVD player has decreased in price. Stagflation will get worst as R & D funds in major technology companies will dry up, old technology won't be replaced as quickly i,e people will use software and hardware longer with out replacing it regularly. Prices will drop on tech goods and then remain in a static (lower) price range.

• Commercial property is a time bomb. Look at a central business district anywhere in the world, more particularly UK, USA, Australia, Asia, Middle East; and see the lease signs and the vacant areas. That's declining value right there, falling value that is leveraged with debt refer to US commercial property market next to collapse?

Central banks and goverments have shown total irresponsibility with their rescue packages/bailouts and stimulus and so on. Not only do they continue to distort free market economics with intervention. They are destroying the budgets and paving the way for a severe bout of a 'lost decades' ala Japan in the late 1980's mid 1990's, via tax increases and shrinking capital to the private sector.

• The US situation is frightening, in fact it is horrifying in an economic sense. The hazy figure of 1.4 and 1.8 trillion in deficit which is saying to the market that this figure is growing by the day. The 2 trillion + mark would be closer than we think. Still Obama's administration needs to raise the 2 trillion to cover the deficit and their ad hoc infrastructure plans, bank bail out and stimulus measures. This week on Tuesday 26th and Wednesday 27th 2009 the US Treasury is going to try auction $40bn of two year notes on Tuesday, $35bn of five year bonds on Wednesday and $25bn of seven year debt on Thursday. The market will be watching how much the debt binged 'out of control' Federal reserve buys and if overseas investors actually buy.

Still the goverments of the world are now all facing 'structural' deficits, so a next crisis is a global deficit crisis. Similar to the banks/liquidity crisis of 2008. A deficit crisis will be whole countries freezing up lending (to debtor nations) and the failure of buying of Bonds and Treasuries or governments debt (from other countries). It doesn't make sense to assume that countries can self capitalize without foreign investment.

• So from a deficit crisis this will lead to a currency trade war, I suspect it has already occurred with the US dollar debasing. Others will follow suit especially export based countries, so a protectionism trade war with currencies will also occur combined with an inter-continent deficit crisis. The inflows of money from country to country will simply dry up. A terrible assumption by certain economists is that a severe 'structural' deficit will be off set with people saving rather than spending. The assumption is people save in preparation for higher taxes, but to remove the stagflation/inflation equation from the calculation is misleading. Both inflation and stagflation will rob people of their wealth. They will be taxed from everywhere, mixed with diminished wealth and collapse asset values. This will guarantee that a society or economy will remain stagnant with flat line growth for years.