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For those of a gloomy bent, the website prudentbear.com is a constant source of support. Every day, the site gives links to the most depressing articles in the world's financial press and provides a few jeremiads of its own. A recent example by author Tom Au, describing the global financial system, was entitled The Emperor Has No Clothes.

Many may be tempted to dismiss the authors as "perma-bears" who would find an excuse to be gloomy were peace to reign in the Middle East. But they do have a serious case to answer, one that looks all the weightier given the current financial crisis.

The principal thesis of the bears is that the global economy is built on sand, or rather a vast edifice of credit. Credit gives investors the same kick as alcohol offers; it makes them feel invincible. As they borrow money to buy assets, their actions make asset prices rise. Rising prices make banks feel more confident about lending money, giving the spiral more impetus.

This is an age-old pattern. But it has been given some more modern twists over the past 25 years. The first was financial liberalisation and innovation. Not only are more people to get mortgages but those mortgages are repackaged and sold worldwide. The Bank of China can end up, effectively, owning the home loan of a Wal-Mart worker in Texas.

The second is the effect of globalisation, particularly in the labour markets. Economic expansion has not been accompanied by rampant inflation, because of the effect of Chinese wage costs on manufactured goods prices. Profits have also risen to a 40-year high as a proportion of US GDP, making business feel confident. And consumption has not been crushed because the workers have been able to borrow (liberalisation again).

The third was a strange switch in the pattern of world finance. Traditionally, emerging markets needed additional capital to invest, and the developed world supplied it. This required emerging markets to run current account deficits. But that made Asian and Latin American countries vulnerable to crises of confidence as we saw in the 1980s and 1990s. They resolved to change their ways. Now emerging markets run surpluses on average and the West - particularly the US - runs deficits.

The flow of Asian savings has meant that the US has not suffered the traditional penalties for running a long series of trade deficits.

This combination of circumstances explains why the bears have been so disappointed in the past. They looked as if they might be proved right in 2002, but ultra-low interest rates revived the housing markets, and the global economy did not suffer anything like the predicted pain from the collapse of the dotcom bubble. In my view, the bears have clearly underestimated the economic impact of globalisation and the structural changes caused by liberalisation. But that does not mean they will not be proved right in the end. Clearly, a more sophisticated financial system means workers can borrow more, relative to their income, and this can smooth their consumption over their life cycles. There must, however, be a point when that debt level gets too high, and workers cannot borrow any more.

Similarly, the sophistication of the financial markets has an obvious Achilles heel. It sounds great that risk has been sliced, diced and dispersed but such vehicles work on the basis of confidence. When that confidence disappears, as it has recently, liquidity dries up. Parts of the market can freeze and that can have real economic consequences.

It may sound technical that the Libor rate is high but Libor is the benchmark for many corporate loans. Furthermore, the benign spiral that helped asset prices on the way up acts in reverse on the way down. Bankers call in their loans, which causes speculators to sell assets, which reduces the collateral held by bankers and so on.

So I think the bears have a serious case to answer. I would still be cautious, very cautious, about the corporate bond markets and would still encourage investors to have a good cushion of cash. Not only will this give them security; it will allow them to take advantage of any opportunities that arise from the current shakeout.

Philip Coggan is Buttonwood columnist for The Economist