Is the global economy set for trouble?

So all is well then: inflation and interest rates are low, global economic growth is strong, corporate profits have recovered, and bosses around the world are as optimistic as they haven't been for a long time.

Or is it:


Fair enough, Mr Roach is a notorious "Davos bear", well-known for his economic pessimism.
Trouble is, many people here are happy to agree with him, even his old sparring partner, the perennial optimist Jacob Frenkel, vice-chairman of insurance giant AIG.

The list of potential problems is worryingly long:

• 
  The US budget deficit is escalating to a record $427bn this year.
• 
  American consumers are on a buying spree for foreign goods, have more or less stopped saving and instead plunder the piggy bank by re-mortgaging their homes.
• 
  Every day foreigners stump up $5bn to finance US spending.
• 
  Protectionism is growing as trade imbalances make free trade deals more difficult to sell to suspicious voters.
• 
  And there is still a worldwide risk of deflation, or steadily falling prices, which would discourage investment and push large parts of the global economy into a deep freeze.

Even the stock markets still look suspiciously overpriced, says Robert Shiller, economics professor at Yale University and author of the book 'Irrational Exuberance' in which he correctly predicted the stock market slump of 2001.
So what will happen "when the music stops", as Mr Roach puts it.
Worryingly, the first session to be oversubscribed in Davos was entitled: "Spotting the next bubble before it bursts".
The first test will come this year, says Mr Roach, when the US central bank starts raising interest rates again.
"The overly-leveraged, savings-short US consumers will be the weak link in the chain, and we'll see how they take the stress," he warns.
AIG's Jacob Frenkel, meanwhile, argues that the basics need to be sorted out first: "We need to deal with the US budget deficit, the slow economic growth in Europe and the poor savings rate in the United States."
However politicians are unlikely to act, he says. The next meeting of the G7/G8 group of the world's richest countries "will be all about exchange rates, instead of policy measures to change the fundamentals".