Readers of this blog know that I have been a pessimist on the “real” economy of the world. With population growth slowing or declining in Europe, the US, Japan, Korea, China, India, and Brazil, it seemed to me the demand for cars, houses, and other major goods that depend on the formation of new household could not continue to grow at the rates common from the 1960s through the 1990s. Growth could only continue based on productivity pushing up wages, and people replacing older goods with newer and more expensive, higher-quality ones.

But we have not seen anything like that. What we have seen is productivity growth, but with the gains going to the top 1% of rich country consumers, although more generally to emerging market consumers. Still, it has become clear that in emerging markets much of the growth has been driven by government and private investment, not growth in consumption (except for the top 10-15% who have entered the global middle class). And that investment, in turn, was driven by cheap money provided courtesy of the Federal Reserve and state policies to funnel funds into urbanization, transportation, mines and factories.

All of this managed, surprising me, I will admit, to drive up stock market prices by 30% last year. But I had to wonder — how could such a price increase be justified when underlying consumption and production was not growing at anywhere near that rate. Indeed unemployment remained way too high in Europe, people were dropping out of the labor force by the millions in the US, and wages in both were stagnating. Brazil, Turkey, and India remained badly managed, with inadequate infrastructure high government spending and dependence on external financial flows. Japan’s aging and debt are starting to catch up with it and reach critical levels. Still, all of these underlying problems were happily ignored, obscured by the flood of cheap money issuing from the Fed and the ECB. With unlimited funds available at negative real interest rates, why worry?

All this has started to change with the Fed’s tapering off from its stimulus. Will we get a soft landing, in which the stimulus being withdrawn is substituted for by real growth? Despite some recent good news on US and British GDP growth, it seems doubtful. Signs of the slowdown in China keep growing; much of the US GDP gain was inventory build up and spending of savings, not gains based on improvements in employment and income; European unemployment remains well over double-digits and deflation risk is again growing. Add to this that emerging markets are now beginning to feel a panic as to whether they can continue growing when cheap outside finance starts to dry up. This panic has already led to major drops in the Turkish lira, Russian rouble, South African Rand and other EM currencies.

So which is more likely — that this month’s market drop is a just a blip, a correction in what is an otherwise happy story of rising output and growth that will continue? Or that last year’s market rise was a credit-fueled uptick that hid but did not cure underlying restrictions on growth? We should know more by the end of this year, but in the meantime, I’d keep some worry beads handy.