he global economy is made up of various countries’ GDP. The largest being the GDP of the US and soon the second largest will be the GDP of China, eclipsing Japan for the first time in many decades.

Looking at the GDP growth figures and the changes in the weightings of the GDP’s of the so called emerging countries compared to the overall world GDP and GDP growth, one would wonder whether the term “emerging countries” are still appropriate.

Given the extent of the damage caused by the global financial crisis in the past 2 years to the so called “developed countries”, compared to the relative resilience of the “emerging nations”, and even the so called “frontier nations”, it is clear that the composition of the global economic power has indeed shifted greatly. This has been further confirmed by the formalization of the G20 summit, replacing the traditional role of the G7/G8.

In recent months, the events unfolding in Greece give another wake up call. For many decades, wealthy countries have overly taken for granted the generosity of the capital market for their comparatively irresponsible spending. The moment of reckoning has come at the worst possible time, just as the global financial crisis appears to be subsiding.

However, Greece is just a very small picture of the overall situation, with its GDP comprising of just less than 3% of the entire Eurozone.

One should be concerned more and more on the other EU countries such as Portugal, Spain, Ireland, where recently some credit rating downgrades have been handed to them, reflective of their fiscal situation. This is not to mention that the UK is lucky not to be punished by the financial market, just yet, given that their fiscal situation is in actual fact quite close to that of Greece, except that it’s even bigger.

Across in the Asian region, Japan is also facing a serious fiscal situation. With deflation continued unabated, the monetary policy at its ultra loose level, they can’t help but rely on continuous fiscal stimulus in never ending attempt to jump start their flagging growth, soon approaching its 20th year. And soon, with public debt roughly twice the size of their GDP, their hands may be tighter than ever before in history.

In mid 1990s, SE Asia was rocked by their currency crisis, and their currency volatilities reached record levels as their units slumped precipitously. In the past few months, ironically, the volatility of their currencies are actually less than those of the developed nations.

With this trend going on, one cannot help but wonder when the US, UK will eventually lose their much coveted AAA rating. And when the day comes, the long-held doctrine that the US Treasury bond is the benchmark of the risk free rate and thus the anchor of the other asset pricing measurements can go down the drain, leaving participants to wonder how risks could actually be measured.

Things remain to be seen. But one thing for sure is that unless some serious, substantial corrective policies are implemented, the world economy we’ll see in 5 years time from now (2015) will most probably be quite a difficult one. And for sure, the next global financial crisis will be the most serious that modern history has ever witnessed to date.