Answer by Alex Lightman:
Very good question. Just as ships have compartments so that even if one is flooded, the others can be kept free of water, so can the economic system isolate different parts and keep them from creating a global system wide collapse.
Consider Argentina. Multiple economic collapses, but isolated enough not to cause even a regional failure in South America.
The ticking time bomb in the system is the Peoples Republic of China, which might be renamed The Creditors Repossession of China. China has much more debt than is understood, likely 300% of GDP. If we assume the average interest rate on official banks is 4% and from shadow banks is 10%, and that these are roughly equal, the average cost of this debt is 7%. So China has to grow 21% a year just to keep up with the debt service.
China is not growing 21% a year. This is impossible: the larger an economy, the greater the percentage of the world's economy, the harder it is to grow faster than the world average. That's just math.
As for statistics, it's been said that China's GDP number are aspirational, and have little to do with reality. While official statistics might project 7% growth, as it turns out China probably is experiencing zero growth.
So implosion of China is coming, probably within a year, and definitely by the end of 2017, because China's work force will peak in 2016, and most of China's growth has been caused by an increase in the work force, not due to massive productivity growth per capita. And most of the investment and GDP growth has come from real estate…which no longer makes economic sense because there are over 70 million uninhabited dwelling units, and a shrinking work force doesn't usually need to keep adding millions of unoccupied dwelling units.
If and when China crashes, this will greatly effect the fortunes of Russia and the other 67 nations of Asia, as well as many of the 51 nations of Africa, which will impact the weaker nations of Europe, which will cause the collapse of the Euro, which will harm Latin America and Russia and the Middle East.
The US still has the reserve currency (the US dollar) and the most heavily traded financial instrument (US Treasury bonds), and has figured out how to rig the game to create money out of thin air and buy its own debt.
Returning to China…China is currently seeking, and succeeding, in getting other nations to join its efforts to displace the position of the US financially, including via the Asian Infrastructure Development Bank. So over the next three years, if China succeeds, it might be able to take the US down with it.
And then we'd have a collapse of the entire system. By the end of 2017.