It has been the question of the day at every high-powered international gathering for two years: Are we out of the woods? The answer at this year's World Economic Forum appears to be an optimistic "Yes, but..." The world may have stepped back from the particular brink of 2008, but it faces huge risks ranging from spiraling food and commodity prices to the danger of trade and currency wars, against a background of growing inequalities that threaten stability.

So at the start of the annual conference at Davos, celebrity economist Nouriel Roubini raised a glass that was half-full – or  Nouriel Roubini raised a glass that was half-full - or was it half empty? - and declared it a metaphor for the global economy. Judging by the opening panel that Roubini shared with an international array of business leaders and economic thinkers, it is also a world that is struggling to come to terms with the historic transfer of wealth and influence away from the long-dominant West: Will countries collaborate? Can it work to everyone's benefit or will living standards in the developed world collapse? Will the world run out of re- sources? The panel struggled with these themes.

"There is a global economic recovery," said Roubini, who gained renown for predicting the crisis of 2008 and a few months ago was still warning against the possibility of a "double dip recession." He noted that "balance sheets are strong, confidence is rising," credit spreads have fallen and liquidity - the availability of credit has increased.

But he warned that in the U.S. and Europe, growth remained low and unemployment high, and the U.S. faced a continued real estate crisis and inspired little faith in its ability to tackle its deficit and debt. In Europe, markets have forced an austerity that endangers growth. And in an allusion to China, Roubini said there was "not enough exchange rate adjustment" and warned this could lead to "currency wars and eventually trade wars and protectionism." Advertising magnate Martin Sorrell said he was "surprised, very surprised" by how well business did in 2010, admitting he would not have predicted that the revenues of his firm - global communications empire WPP - would return to pre-crisis levels by the second quarter of last year.

But he warned that corporations were so spooked by the crisis, and perhaps also by the current risks, that "there is an unwillingness in the West to invest in capacity and in increasing fixed costs" - such as new employees. So even though revenues in many cases are back to where they were, people have not been rehired - which explains unemployment but also the high profit margins that are buoying stock prices and balance sheets.

One bright spot for the businessmen: whereas James Turley, chairman and CEO of Ernst & Young, said business felt "demonized over the last couple of years," he said he was now identifying a change of tone from Washington that he attributed to a realization that "business needs to succeed in order for them to create jobs for people." But the panelists all agreed that the global recovery was uneven: tepid in Western Europe, slow in the U.S. and fast in many of the emerging economies. Reflecting the global transition, panelists noted that the transfer of wealth was not just from west to east - but also to the south, with impressive gains in Latin America and Africa. Expanding on the previous shorthand acronym "BRIC" - how Goldman Sachs described the emerging global relevance of Brazil, Russia, India and China - the catch-phrase seemed to be the "Next 11" - a clutch of other emerging nations ranging from Indonesia to Vietnam.

It is in these emerging economies that one sees most of the interesting initial public offerings on stock markets, Turley said. And he noted that trade between emerging markets themselves - by- passing once-dominant trading partners in the West was increasingly common. But the recovery is fueling demand that is causing fast gains in commodity prices - oil and metals, for example - and runaway food prices that are blamed for increasing social instability in some places and account in part for the recent revolution in Tunisia. For many countries, panelists noted, this raises the question is whether to raise interest rates to dampen consumption and bring down prices: that also drives up the currency - suppressing exports and it can harm growth.

Turley also noted that the world would soon face great demo- graphic imbalances, creating some unexpected alliances: In 2020, he said, the average age in the U.S. and China will be 37- 38; in Western Europe and Japan it will be 47-48; and in India and the Middle East it will be 27-28. "This will cause enormous impact and an array of policy issues," he said. The panel identified inequality - in both developed and emerging economies - as a major problem that could feed social unrest, creating uncertainties that might stifle the recovery.

Sorrell noted that wealthy people are more likely to invest their spare cash in financial assets "that causes asset bubbles" where as when the wealth is more evenly spread the chances of growth stimulating and therefore wealth spreading consumption increases. "You attack it with increasing marginal income rates" which is rarely a popular policy, Sorrell said. Azim Premji, chairman of Wipro, a global information technology firm, said inequalities were increasingly visible in his country of India and elsewhere in the developing world, where rapid ad- vances were not spread equally. Zhu Min, a former deputy governor of the People's Bank of China, said the billions of people in the developing world wanted to have the same things the developed world has: "An American life, a big car, pension... But it won't work because we don't have the resources." Would these aspiring billions really agree to make do with less? In a way, but not exactly, Zhu Min told The Associated Press: "We don't want to adopt the Western model. It won't work. It will be necessary to come up with a new model."

• Herman Silchan | Canada

Risis is not restricted to the US dollar but has affected all financial institutions of the world. Trigger was the downgrade on August 5, 2012, of United States rating from AAA to AA+ by Standard & Poor, (S&P) a private rating agency. The consequence has been that all stock markets in the world recorded massive declines. The downgrade complemented the turmoil in Europe with the debt problems faced by PIGS (Portugal, Ireland, Greece, Spain). PIGS  joined by France and Germany who have their own Euro-dollar problems to cope with.

World Economic History snapshots: impoverishment of the world

India and China accounted for 50% of world GDP for all of the past 2000 years. (Now they account for only 25% of world GDP). The impoverishment was caused by colonial exploitation.

US economy: some history lessons

26.5 Decline in GDP (from 1929 to 1933).

Unemployment: 24.9% (1933), >20% (1932-35) 85% in stock prices; 47% in industrial production; 80% in home building (1929-33)

Double-dip recession of 2011 evokes these memories.

Why is US $ a big deal in global finances?

US $ dominates currency circulation in world economy.

$ Forex holdings are held by countries outside USA.

US trade deficits and consequent increased supply of US $ to the world meant that over 66% of US $ (1980- 2005) are held outside USA. Two- thirds of US $ (Over $1 trillion) are in circulation outside USA.

Total Forex business: $3.98 trillion (US$ accounts for $1.69 trillion or 42.5%; Euro accounts for 19.5%).

Causes for dominance of US$

After the formation of OPEC and Petroleum products cartel, Kissinger ensured that these petro-dollars were stated in US$ terms and recycled in the world.

Thanks to forex, trade, investment, financial derivatives (puts and calls, credit swaps, participatory notes), petro-dollars, US $ is the dominant currency.

Total Forex reserves: $9.7 trillion (i.e. 16.7% of World GDP 58.26 tril- lion). Of these reserves, 2/3 are in US $,  held and  transacted in financial markets.

Keynesian economic model

Keynes was instrumental in introducing the current mainstream eco- nomic thought, in the wake of the First and Second World Wars.

He wrote two works:

The Economic Consequences of the Peace (1919)

How to Pay for the War: A radical plan for the Chancellor of the Exchequer (1940)

Economic consequences of peace (1919)

Keynes wrote in 1919: "If we aim deliberately at the impoverishment of Central Europe, vengeance, I dare predict, will not limp. Nothing can  then delay for very long that final war between the forces of Reaction and the despairing convulsions of Revolution, before which the horrors of the late German war will fade into nothing."

He attacked the post World War I deflation policies with A Tract on Monetary Reform in 1923 - an argument that countries should ensure stability of domestic prices, avoiding deflation even at the cost of allowing their currency to depreciate.

Keynes's predictions of disaster were borne out when the German economy suffered the hyperinflation of 1923, and again by the collapse of the Weimar Republic and the out- break of World War II. Only a fraction of reparations were ever paid.

How to pay for the war (1940)

At the height of the Great Depression, in 1933, Keynes published The Means to Prosperity, which contained specific policy recommendations for tackling unemployment in a global recession, chiefly counter cyclical public spending and contains one of the first mentions of the multiplier effect.

Keynes' General Theory of Employment, Interest and Money (1936) argues that demand, not sup- ply, is the key variable governing the overall level of economic activity. Without government intervention to increase expenditure, an economy can remain trapped in a low employment equilibrium. Keynes advocated activist economic policy by government to stimulate demand in times of high unemployment for example by spending on public works.

One consequence was the US announcement of Marshall Plan

Key argument was that war effort should be largely financed by higher taxation and especially by compulsory saving (essentially workers loaning money to the government), rather than deficit spending, in order to avoid inflation. Marshall Plan finally ended up in the formation of European Community with Euro dollar as their common currency.

How to overcome the present economic mess?

(1) Promote public works, reduce unemployment

US and developed economies of the world should pause and learn lessons from history of the last 20 centuries. Impoverishment of colonies by the colonial loot should be recognized. Developed economies owe reparations to the impoverishment developing world which has come out of colonial dominance. One solution: Just as European Community and Eurodollar were formed, an Indian Ocean Community and Mudra as common currency of IOC should be instituted.This will lead to employment generation in ALL economies of the globe.Law of the Sea now expands territorial waters to 200 nautical miles, opening up new zone for economic exploitation. Projects are ready to link Vladivostok and Bangkok through Trans-Asian Highway and Trans-Asian Railway - projects which will provide the multi- plier effect made popular in economics by Keynes.

(2) Promote savings

Avoid the temptation to print US dollars. Slow down the US $ money circulation. Institute steps to reduce US and other Developed Countries' Current Account Deficit by increasing their exports of services for public works' financing in Developing countries, for e.g. IOC.

US current account deficit (1976 to 2009): $8.5 trillion which becomes forex reserves of nations outside USA.

Promote savings in USA and other Developed Countries.

Promote investment of $ held as cash by corporate.

(3) Ban financial derivatives

Financial instruments such as options, financial derivatives, and participatory notes create a false sense of financial health.They do not provide insurance cover, they only promote the development of excessive greed. To promote greater corporate social responsibility, take lessons from millennia old Dharma-dhamma institutions which promote social responsibility through sreni dharma (corporate responsibility) (e.g. makamai, a voluntary contribution of a percent- age of turnover to social causes).

Mukesh Ambani-controlled Reliance Industries Ltd (RIL) may be looking at major forays into homeland security and aerospace sectors. In the first firm indication of the group's intention, it has hired Vivek Lall, a former NASA scientist who aggressively led Boeing's military and commercial division in India for several years. Lall is joining RIL as president for a new venture which would be focused on homeland security and aerospace, sources said. A RIL spokesperson declined to comment. According to market sources, Lall could be leading the new RIL venture with cutting-edge homeland security solutions. There is also speculation that the group could go further down and enter aero-space arena at an appropriate time, one source said.

Reliance sources said Lall's appointment to pursue opportunities in the homeland security space is synergistic with the group's plans for broadband wireless access services. The group is expected to roll out the next-generation technology services soon. RIL is looking to develop safe and secure smart cities as well as systems for disaster management preparedness. When Lall headed the Boeing commercial arm it won over $25 billion worth of commercial aircraft business in three years, and during the past four years when he headed defence, space and security the company scooped up almost $10 billion worth of business in India.

Into the security sector could have significant impact on the entire industry, given the over-dependence of India on foreign suppliers for security solutions. Homeland security is a major growth sector, with national security agencies and state police forces on an unprecedented modernization drive. There is also a major demand for home-land security solutions from the private sector -- RIL itself is among the biggest consumers of security solutions in the country.

RIL's entry into homeland and aero-space security could have a far bigger impact than the entry of Indian groups such as Tata, L&T and Mahindra. Lall is among the new breed of professionals to join RIL from other companies. A few years ago, the group had hired R Ravimohan as executive to transform business processes from Standard & Poor's. A few months into his new assignment, Ravimohan had died of a heart attack. Other professionals who have joined the group in the recent past include ex-Citibanker V Srikanth and Gwyn Sundagul from Tesco Thailand. Srikanth was appointed as deputy CFO in July 2010 while Sundagul heads the Reliance Value retail format since December 2009.