Instability in the financial sector could spill over into trade in goods and services, leading to an even more dramatic decline in demand and output. A third risk is that these events might also prompt governments to adopt wrongheaded protectionist measures, which would exacerbate the damage to the global economy.
Economic theory and history tell us that external indebtedness cannot keep growing indefinitely as a share of a country's GDP - even for a country like the United States with its reserve-currency status. There is no compelling reason to believe that historical and fundamental economic and financial constraints do not apply to the world economy today.