The new rules proposed by US President Barack Obama to limit proprietary trading by banks and the spectre of tighter Chinese monetary policy have jolted global markets. Most equity markets are down from their levels of 1 January.
The breathtaking equities rally in 2009 was based on extraordinarily loose fiscal and monetary policies, as governments around the world fought the prospect of a total meltdown in the global economic system.
This coordinated policy response has been successful in meeting its primary goal, even though there continue to be occasional shocks from countries such as Dubai and Greece. But the inevitable bill is now staring us in the face: a resurgence of inflationary pressures and public debt at levels that increase sovereign risks.
Though, there is still huge debate on when countries can exit their loose policies, it is quite certain that the clock is ticking. A new financial architecture, too, will be built. Regulatory risk and monetary policy risk: the markets have good reason to be worried.