Apparently the recovery in the global economy has been faster than expected, as recent data indicate. The US economy grew at a rate of 3.5 percent in an annualized basis in the last third quarter. Latest global economic outlooks projected by the UN indicate that in contrast to the decline in the world output by 2.2 percent in 2009, it will grow by 2.4 percent in 2010. Countries like China and India are projected to grow by higher rates at 8.7 and 6.5 percent respectively.

Various growth enhancing factors are claimed to be positively contributing. The rebounding in industrial production and global equity market as well as falling risk premium on lending rates are assumed to continue. The international trade which is estimated to decline by 12.5 percent in 2009 is also projected to grow by more than 5.5 percent in 2010. There is implicit assumption that the eroded consumer confidence especially in the capitalist countries will be over soon. It has also been believed that the continued depreciation in US dollar will contribute to narrow down the trade imbalance of the US leading to correction in global imbalances. However, a closer examination of various growth reviving factors reveals that they are self-contradicting and most fragile, and thus pose a danger of reemergence of crisis sooner than later.

It is now more than obvious that the global recovery is primarily due to the mammoth fiscal stimulus packages and banking bailout plans. By now almost $ 1.4 trillion fiscal stimulus and about $ 8 trillion bank rescue packages have been injected worldwide. Out of that US, the epicenter of the crisis, fueled major chunk into the financial system. One estimate shows that it diverted as much as $ 11 trillion public funds into the financial system. It has been estimated that nearly 63 percent (2.2 percent) of the 3.5 percent increase in GDP in the last quarter has been due to temporary government tax credits to consumers. It has also been revealed that Federal outlays added another 0.6 percent to growth. According to one estimate, cash for clunkers subsidy to car buyers alone contributed about 1.7 percentage points of the 3.5 percent growth. This simply means that if rescue packages are withdrawn instantly, the US economy will again trap into recession immediately.

The diversion of resources made through deficit financing, however, shows that it is completely unsustainable. This has also precipitated a sharp decline of the dollar on world currency market. The debt to GDP ratio in the US has reached 87 percent in 2009 from 73 percent in 2008. It is projected that the ratio will surpass 100 percent by 2011. The continued very high deficit in US amidst very low interest rate may be regarded to be some sort of zero sum game. At the same time, the inflationary pressures are gradually mounting. This, in turn, may, among others, erode trade competitiveness of the US with resurgence of trade deficit in an unmanageable way as in the past. In the event interest rate is raised immediately that will jeopardize the recovery process itself. The deliberate dollar depreciation policy may also complicate the recovery process. This also may motivate other countries to retaliate.

This will be so by the major exporting countries which also hold dollar reserve in a big scale. More dangerously, in the present global system, unless there is sufficient dollar liquidity, say through US trade deficit, there is no other sufficient means of meeting the dollar demand globally. Therefore, from both fiscal sustainability and assuring of robust global balancing system, the present steps are patchy and are not designed from the standpoint of long term solution.

Truly, the emerging developing countries of South have started to become the locomotive of the global economy. These economies have played the major role in the revival process. Still, compared to US economy they are small. The combined share of developing economies in the global economy is 20 percent, including China whose share is 6 percent whereas such a share of US is still 30 percent. Therefore, any abrupt crisis in US will have similar contagion effect the world over. This is more so due to the dollar being the international reserve currency amidst continued vulnerability of many export oriented countries in a still toxin asset dominant global financial system.

Although, boom and busts are the inherent features of capitalism, too much unsustainable means adopted for the recovery this time and their probable ramifications as pointed

out above indicate that never such downside risks was apparent at the time

of recovery before, be it during the 1970s, 1980s as well as early 1990s and 21st century.

New York University Professor Nouriel Roubini, who predicted the market crash of last year, warned recently that easy money had already created asset bubbles which may be planting the seeds of the next cycle of financial instability. All this means that correction in the systemic flaws of the global economic system is pre-requisite for sustainable recovery that could be beneficial to countries like Nepal as well.