European stock markets have been unsettled again this morning after yesterday's sharp sell-off. Investors' eyes are on Wall Street to see whether yesterday's 200-point drop in the Dow Jones Industrial Average will be repeated.
But while markets have been unnerved by this week's falls, they do not necessarily presage the sort of financial meltdown predicted by some doomsayers. What is certain, and only just beginning to dawn on many investors, is that the extraordinary five-year period of cheap money that has kept the world afloat is now over.
It will be some time before the impact of that spreads to many of the more esoteric assets that had received large bets from fund managers in search of higher returns.
But when it does, there could be a sharp downturn as some of these investments are rapidly unwound. The other preoccupation for many investors is whether they have faith in Ben Bernanke, the new head of the US Federal Reserve, to steer the financial system through a rocky patch.
Fed chairmen have to win their spurs in the markets and Alan Greenspan was faced with the 1987 stock market crash only three months after taking over.
The past three years have been a halcyon period for financial markets where the price of assets almost across the board has risen, and many of the traditional relationships between different asset classes have broken down.
This has seen commodity prices rocketing, gold adding up to $20 an ounce each day, oil up at $75 a barrel, emerging markets booming, government bonds and equities both rising and even the art market reaching a peak.
Not all of these prices will now come crashing down. But there are plenty of signs of tension in the system if investors look for them. A big issue for financial markets is how the world manages the huge imbalances in the global economic system.
The dollar has to fall by at least 20% in value for the US current account deficit to be eroded. Policymakers are concerned with how that dollar fall can be managed. Markets have a habit of overshooting and if the US currency starts to slide, it could get extremely ugly.
That is when the so-called "carry-trades" where investors have borrowed in currencies with low interest rates like the yen to invest in higher-yielding assets, have to be unwound quickly. If that happens, we really could see blood on the carpet.
