The combination of stretched balance sheets and disappointingly slow growth also means that the advanced countries will opt for a mix of approaches to deal with recurrent debt concerns as they continue to de-lever from the age of credit and debt-entitlement. Some, such as Britain, will rely primarily on years of budgetary austerity. Others, like Greece, will succumb to debt restructuring.
Then there is the United States, the economy that anchors the core of the global economic and financial systems. It will initially opt for financial repression -- essentially a hidden taxation of creditors and depositors -- and attempt higher inflation to address its balance sheet issues. With time, however, it will likely be forced into greater austerity amid noisy political posturing and bickering.
The messier this transition, the greater the risk of undermining the international standing of America's global public goods. This in turn will challenge a global monetary system built on the assumption that its core -- the United States -- remains economically strong.
This is an important qualifier for what otherwise would be a far more encouraging outlook for much, though not all, of the emerging world. Look for these countries to continue to close the income and wealth gaps vis-à-vis the advanced countries. In the process, they will pull millions more out of poverty, providing them with greater economic opportunities and better access to education, health care, and nutrition.
As they continue to grow, emerging countries will push for greater accommodation on the part of a global economy that is still overdominated by the advanced economies. Global governance issues will come to the fore. International institutions will be pressured to reform more seriously. And multilateral negotiations will need to be more respectful of the growing strength of the emerging countries.
All this translates into an unusually fluid global economy -- and a world in which many established parameters will instead become variables. The sooner we prepare for it, the greater the chance that we are beneficiaries of the transformations taking place, not their victims.