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| World "on brink of dangerous precipice" – UNCTAD In its latest Trade and Development Report, UNCTAD reports that low investment in the US snuffed out growth altogether at the beginning of 2001, suggesting that a harder landing might send shockwaves throughout the world economy. UNCTAD reports that excessive financial liberalisation has created a world where international private financial flows have broken free from supervision and regulation. Systemic instability and recurrent crises have followed. The leading economies have all been heading downwards, following a sharp slowdown in the United States. With developing countries still vulnerable to economic shocks, the downside risks facing the world economy are mounting. UNCTAD points to, "large increases in debt and the reduction in savings ratios by households and the business sector" in the US and argues that "if the American private sector were to attempt to repay its private debt and restore its savings rates to historical levels, the shortfall in demand could produce a prolonged recession, since it would far exceed any stimulus that could be expected from planned tax cuts. In this scenario, no region of the world could expect to escape the effects of a United States downturn". The Report notes that the slowdown in the US "bears more than a passing resemblance to the Asian experience of easy access to cheap credit and excessively optimistic expectations of higher future earnings, leading to investments that could not possibly be profitable. The Asian boom was followed by a stock market bust and recession, and a similar result appears to be in prospect for the United States…The deregulation and liberalization of electricity and natural gas prices, have resulted in sharply increased heating costs for many households. The decline in consumer confidence is likely to be further reinforced as the effects of layoffs due to corporate restructuring spread throughout the economy". UNCTAD envisages two scenarios for the US economy; a normal cyclical downturn which will quickly bring about adjustments, to be followed by a rapid recovery; or alternatively, a sustained period of disinvestment, producing a recession similar to that in Japan in the early 1990s.
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