The buoyant stock market is built on credit stimuli that cannot continue until there is a recovery in the real economy – and that is still way over the horizon.

Increased government borrowing is an unsound way to stave off recession. It puts sustained economic growth in peril rather than promoting it.

Big overseas holders of US dollar assets, with China at the forefront, will not be sold another pup. Instead of supporting wayward US financial policies they will increasingly diversify to other currencies.

The authorities have run out of ways to deal with the debt overhang and to create new credit. The only palatable way out looks to be a period of generalized inflation

There are limited IMF funds for ailing emerging economies, available only on stiff terms, and that means serious consequences for those that have lent to them.

Germany’s commitment to the EU project will guarantee bailouts for weaker eurozone members. But it’s a different story for hard-pressed central and eastern European states and their banks.

The eurozone’s advantages for both strong and weak members far outweigh any disadvantages that might incline countries to walk away.

This year is not set to be one of economic recovery – the financial assets that are cheap are cheap for a very good reason, and it’s not a propitious one.

The spread of the credit crisis to emerging countries will have more than just domestic repercussions.

Governments worldwide have moved to recapitalize banks. But the amounts injected will only be sufficient to avert a great depression; they are not enough to sustain lending and avert a global recession.

Short of a radical restructuring of the banking sector, the US government bailout will prompt a market rally. However the longer-term effects will be deleterious.

The greenback revival, driven by ECB recognition that the eurozone is faltering, will be sustained by the narrowing of the US current account deficit, the fall in the oil price and the US pursuit of a soft monetary policy.

There will be more rallies but the equity market trend is downward, and there’s a worrying backdrop of rising inflation mixed with declining growth.

Underlying the headlines are distortions in the market that can be overcome by liberalization.

Financial institutions’ woes are not at an end. Non-deposit institutions still have losses to book and the whole credit creation model is broken. So a quick and easy upturn from the credit crisis is not to be expected.

Only suckers believe that the remedies applied to the credit crisis have cured the underlying sickness. There’s more painful adjustment to come, and it could last two to five years.

More assets are yet to be hit in the credit crisis and, as leverage continues to fall out of play, liquidity will keep on drying up. Equity prices are bound to fall still further too.

The effects of the sub-prime crisis are spreading and could cost 2.5% of world GDP. Emerging market economies will not be immune.

The bad news: in 2008 a global recession is bound to set in. The scant good news: the oil price will fall back and the development of environment-friendly technology will fuel investment.

Eastern Europe has borrowed cheaply this decade to fund a credit binge. Now, as the global credit crisis starts to bite, the region’s economies are becoming increasingly vulnerable.

The big banks’ Mlec fund might well unblock the present credit log jam. But there’s no escaping the fact that global liquidity has contracted and capital is being repriced upwards.

Global liquidity is set to keep contracting and inflation will keep on increasing despite a growth slowdown. There is a serious risk of global recession in 2008.

The global economy may be strong, but that does not make it immune to cyclical liquidity contraction.

Bond markets are still too sanguine about inflation prospects. But present global growth rates will inevitably drain liquidity from the financial system.

The world economy is set to keep growing fast for the next few months. But this will take an inevitable toll on the cost of capital, which is already rising.

Market mechanisms, not inflexible penal taxation, are the way to deal with global warming. And market approaches also open profitable channels for investors.

The present run of stock market buoyancy cannot be sustained. And that’s not just because credit is set to contract – so, too, are corporate profits.

The recent sell-off in global stock markets will not be a repeat of last May – a short correction leading to new highs. There is now more to worry about in the global economy and the liquidity cycle is at a turning point.

Market expectations of interest rate stability fly in the face of growing signs of inflationary pressure and the likelihood of a move by the Federal Reserve.

Nothing is more likely to cause instability than a long period of stability. And excessive growth of credit and liquidity is a clear warning sign of crashes to come, probably within the next year.