Bernard Hickey: What's all the noise about the global downturn?

The noise around the global downturn, ruinous debt and rising inequality is deafening.

We hear every night of riots, bailout packages, protests and stock market slumps, but what's really going on in this "new normal" for the global economic system?

The developed world finished a near two-decade- long spending spree funded with debt in 2008.

The problem was that output per person in the developed world slowed its growth through the 1990s and 2000s.

A lack of investment in infrastructure, a lack of progress in finding job-creating technology, ageing populations and a shift in manufacturing to Asia saw growth in real income per worker in the developed world flatten out.

At the same time the liberalisation of financial systems in Europe and the US allowed consumers and governments to borrow to keep growing their incomes and consumption, often of products made in China and Germany with money borrowed from China and Germany, or with money created by central banks.

Now the chickens are coming home to roost.

Rising debt is only sustainable when real incomes are growing faster than debt, but that hasn't happened for at least a decade.

The Lehman Brothers crisis was the first chicken to land.

Since then the debt problem has shuffled from bank balance sheets to taxpayer balance sheets as banks, central banks and governments have kicked the can down the road, hoping they can restart growth and fix the problem with rising inflation.

The second chicken is the sovereign debt crisis on the fringes of the eurozone that is spreading to the core.

Banks feel the stress first. The moment of truth is when they are forced to revalue their assets. This process is called "getting a haircut". That's when the banks agree with the borrower how much to write down the value of the debt, since they realise it can never be repaid and the interest costs have spiralled out of control.

Europe is now at that point. Will the bank shareholders and bondholders take the haircuts when losses are agreed, or can the debt be shuffled to someone else?

It's a battle between the 1 per cent and the taxpaying 99 per cent. So far the former are winning, but the latter are fighting back, hence the noise.