Βι¶ΉΤΌΕΔ

Cold sunlight is streaming through the window and there's a slick of dew on my geraniums. This means it's autumn - a season in which we get to find out some fundamental truths about how the world economy is reacting to this crisis.

It's not even 12 months since the leaders met in Pittsburgh to issue a whose terse fifth paragraph claimed simply: "5. It worked." "It" being the extraordinary, co-ordinated global fiscal and monetary stimulus launched in the wake of the Lehman collapse a year earlier. It is now clear that "it" has only partially worked, and that the political cycle has turned against "it".

Now, as some economies slide back - if not into a technical double dip then into stagnant growth and deflation - we're beginning to see, just as we did in the 1930s, competitive exit strategies from the downturn. The key issue confronting the world economy, as autumn segues into winter, will be whether competitive policy decisions exacerbate the weakness of global growth.

First, an overview.

The USA's annual rate of growth was slashed on Friday from 2.4% to 1.6%. This, as one US economist put it to me, means people will only know the economy's growing because they hear about it on TV. For 80% of the population there will be no experience of growth.

Next, Europe. Europe is a take of two speeds: Germany roaring forward at 2.2% growth in just three months (April-June), Greece collapsing by 1.5% over the same period and everybody else somewhere inbetween.

Now Japan: watch for deceleration but not a double-dip says the Barclay's Capital note in my inbox this morning. Deceleration, yes, and also deflation: Japan's consumer price index fell for the 17th month in a row last week, and now stands at -1.1%

Then of course there are China and India, announcing growth rates of 10.3% and 8.8% respectively. Both economies responded to stimulus well but in addition to the usual demographic and social caveats I will point out that China's inflation rate is around 3.5% while India's at 10% means its inflation-adjusted growth rate is, er, not quite so impressive.

OK, now for a policy overview: in the US the political cycle has turned against further fiscal stimulus. Unless the Democrats pull some spectacular turnaround, all the momentum is against further tax cutting and spending increases. That leaves Ben Bernanke in charge of saving the US economy from deflation, which as he spelled out on Friday, remains a possibility. Bernanke contemplated expanding QE, putting a long-term fix on the Fed's interest rate, or even publicly lift its long-term inflation target: but then he concluded that none of these were really desireable, and wouldn't really work, but that if deflation loomed he would give them a shot.

This, in summary, is the USA approaching policy stasis. There can be no more on the fiscal side and despite the will and the power to do more on the monetary side, there are diminishing returns to action.

Next: policy in Europe. Well in the UK the government is about to unleash a public sector recession: whether this tips over into a whole-economy double-dip depends on whether George Osborne and numerous conservative think tanks are right in expecting a boom in private sector investment and in UK exports. If the UK economy can change gear at a pace it has never achieved before we will avoid double dip. If not, not. Then, as in the USA, it will come down to how much more monetary stimulus can the Bank of England get away with, seeing that its inflation target is in reality already busted, and implicitly raised.

As for Euroland: Southern Europe is stymied from any further fiscal stimulus because its membership of the Euro is on a E700bn life support facility. Germany, Sweden and anybody who can ride on the back of their resurgence could do more, and indeed the Swedish ruling party is going into September's election promising tax cuts. But overall Europe remains incapable of further monetary stimulus; the ECB cannot do full-scale quantitative easing and is not likely to be brainstorming any of the unconventional measures.

Japan today has announced a further round of quantitative easing and fiscal stimulus: adding Β£220bn to its money-printing efforts and a much smaller sum to job creation schemes. But Japan's debt is 225% of GDP. And its currency keeps on strengthening against the dollar, preventing an export and profit-led recovery.

Now to the likely outcomes. Japan is clearly contemplating an attempt a massive devalutation of the Yen against the dollar using market manipulation. Europe has to make good on its E700bn guarantee to the failing economies of Southern Europe and Ireland. Apart from this, the time of big action in the face of crisis seems to be over.

Looking back over the past 24 months, we've constantly tried to compare them to the post 1929 period. The slump was if anything sharper and quicker because of the impact of globalisation - but then again the impact of stimulus was also more dramatic: the modern economy is, like a highly trained athlete, simultaneously fragile and robust: it snaps a ligament but responds well in the oxygen tent.

But there was something much more obvious that it's now possible to see with hindsight. When the crisis happened, politicians were in charge who were philosophically pro-stimulus: Brown, Sarkozy, Hu Jin-tao, Taro Aso and George Bush had no deep-seated ideological fears of high budget deficits. Now the political cycle has swung around completely. In the USA, all the momentum on the right is driven by deficit-hawk Republicans; in the UK the Coalition has adopted an aggressively anti-deficit stance; in Europe - where Merkel fought a rearguard action against a globally-co-orinated stimulus - the stimulus phase is over and the fear of debt downgrades haunts the periphery.

In the Great Depression, the political sequence was that freemarket economics disgraced itself in the first phase, provoking a deeper collapse than necessary, and then Keynesianism emerged (or local variants of it), using fiscal, monetary and trade policy to escape the collapse. This time around Keynesian pragmatism was in charge at the start and is being succeeded in many places now by more orthodox, even neo-liberal policymakers. It's too soon to tell how that will shape things, but somwhere between the British general election and the US midterms history will note it became a tangible and dominant trend.

So autumn 2010 is the season where, for starters, fiscal and monetary policies are out of joint in the major economies: both the global bond markets and the political cycle have closed off the options for fiscal action, so the unelected central bankers are now in charge - but even their options are running out, or constrained by remit, or ideology.

For individual economies however there is one more round of action still available: that is a combination of currency devaluation and trade/domestic investment policy which makes it possible to export part of their own crisis somewhere else. Everyone who has read Bernanke's book on the Great Depression learns one lesson: those who devalued their currencies first escaped the Depression first. Germany has quietly implemented this policy, exporting its way to recovery on the back of trade surpluses with the very South European countries who its banks lent money to. Meanwhile one of the reasons the USA's growth is so weak is that imports are surging in while exports are stagnant.

So the next phase of the crisis is going to be characterised by two questions: can economies find sources of growth in the private sector, and exports, as their public-sector stimulus runs out? And will this lead to some major redrawing of the global currency and trade map?