The official view of the world economy put forward, for example, by the International Monetary Fund, is that everything is going splendidly, despite the sharp falls in global share prices last May and at the end of February this year.
The optimists can cite evidence in their support. The US, still the main hub of the world economy, quickly emerged from the recession it suffered in 2000-2 and has been growing quite respectably.
The combination of US growth and the continuing Chinese boom has kept the world going through the great geopolitical crises since 11 September 2001.
But, in a curious way that Sherlock Holmes would have understood, the prevailing mood of optimism is itself a danger sign.
For the past decade the growth of the US economy has depended critically on financial engineering by the US central bank, the Federal Reserve Board, or Fed.
In the late 1990s Alan Greenspan, chairman of the Fed till last year, tried to prevent an economic slowdown by encouraging the expansion of the stock market. He reacted to the bursting of the resulting speculative bubble and to 9/11 by slashing interest rates as low as possible.
This produced a new bubble in the housing market. Cheap mortgages pushed up house prices. Existing homeowners took advantage to renegotiate their mortgages and spent the money they saved on consumer goods.
This spending – sustained by massive borrowing – kept the US and hence the world economy afloat.
But is this debt-driven growth sustainable? Worried about rising inflation, the Fed and other leading central banks have started pushing up interest rates. Last year the US housing market started slowing down, with falling prices and new houses going unsold.
This didn’t stop the financial markets. Credit is still cheap by historical standards. Thanks to the globalisation of financial markets, a “carry trade” has developed through which banks, hedge funds, and the like borrow money in Japan, where interest rates are still very low and lend it in countries where rates are higher.
The search for extra profits has led to dodgier and dodgier practices. One of the chief of these is the subprime mortgage market in the US.
This provides mortgages to people with bad credit records. Borrowers are attracted by low interest rates, but these rise over time to take account of the fact that they are high risks.
This kind of speculative practice is sustained by the explosion in recent years of credit derivatives. These allow lenders to cover themselves against the risk involved in making a loan by, in effect, selling the loan onto someone else, who often does the same, and so on.
Defenders of credit derivatives say that, by allowing lenders to insure themselves against the danger of default, they spread the risk more widely and thus make financial markets more stable.
But you can look at this quite differently. The security provided by credit derivatives encourages money capitalists to take bigger and bigger risks. The subprime mortgage market is a good example.
As interest rates rise, so do repayments, pushing many subprime mortgages into default.
One of the driving forces in the latest bout of stock market instability was a surge in bankruptcies in subprime mortgage companies. Tens of billions of dollars have been lost.
And here we come to another problem with credit derivatives. Central banks worry that by spreading risk so widely they mean that a collapse in any financial sector will pull down firms in many others.
Some major banks and funds invested heavily in the subprime mortgage market in search of big profits. “Undoubtedly there will be some bodies floating to the surface,” one hedge fund manager told the Financial Times.
Whether these include the US economy remains to be seen, but sooner or later its speculation fuelled growth will hit a brick wall.