There was a collective sigh of relief on Friday night as Wall Street traders dipped their toes back into the turbulence.

Markets ended higher, although Europe remained patchy, as ever-optimistic stock salesmen reverted to the usual war cry: "It's a buying opportunity".

In ordinary times, they may well be right. A 5 per cent slide in two days normally would be enough to bring values back to earth in a market that temporarily had lost sight of itself.

But these are dangerous times for investors and the global economy.

After a decade of extraordinary central bank intervention, the era of free money is rapidly drawing to a close.

It's not just that global interest rates are on the rise. The amount of money swirling through markets is drying up.

The US Federal Reserve has hiked interest rates eight times in the past two years. After its third rise this year, a fortnight ago, it warned another was likely before year's end.

Other dangers lurk in the shadows.

The first is that the America's central bank is sticking to its plan of not just stopping stimulus, but reversing it.

At her final meeting in January, former chairman Janet Yellen pulled the trigger on a plan to claw back the almost $US4 trillion injected into the US economy since the financial crisis.

If the idea of injecting that kind of cash into the economy was a risk, reversing the process is likely to be equally traumatic.

She started off with a plan to siphon off $US10 billion a month. Under Jerome Powell, that has gradually accelerated each quarter.

Soon $US50 billion a month will be soaked up out of the market. And it's happening just as the European Central Bank is scaling back its own stimulus.

A graph showing US 10-year bond rates from 1980 to 2018. ( ABC News )

After a decade of being swamped with cash, liquidity, suddenly, is drying up.

The second danger is US President Donald Trump's fiscal policy. With massive tax cuts and big spending plans, he's effectively firing up an inflationary cauldron on an economy that already appears to be on the verge of overheating.

A fortnight ago, US unemployment fell to its lowest level since 1969.

That can only lead to one thing; even faster rate rises. It's a potentially lethal combination; more expensive money, and a lot less of it.

If the idea of all that stimulus was to boost asset prices, like shares, bonds and property, it stands to reason that withdrawing it will do the opposite. It's a concept Wall Street refuses to accept.

Warnings coming thick and fast

Last week, the International Monetary Fund downgraded its outlook for global economic growth.

There was precious little diplomacy as to why. US President Donald Trump's trade war with China was starting to bite, it said.

The World Bank had similar warnings. The trade war combined with a huge lift in global debt — now approaching $US250 trillion — was "painting a troubling picture", according to president, Jim Yong Kim.

China's most successful export to the developed world for the past 30 years has been low inflation.

After the developed world recession of the early 1990s, China's rapid industrialisation — producing everything from clothing to consumer goods and heavy industrial machinery — flooded the West with low-cost exports.

Mr Trump now wants to reverse that, all in the name of more "balanced trade". But it comes at a cost, that likely will fuel inflation, particularly in America.

Add in his tax cuts and big spending plans to buy his way into a second term in office, with a blow out in the budget deficit, and the President is forcing the US Federal Reserve to ramp up its rate hike program.

If there is one ingredient guaranteed to stifle a bull run on stock markets, it is higher interest rates. For the moment, however, Wall Street devotees desperately are trying to ignore reality.

Perhaps the sheer momentum of their collective will can delay the obvious looming correction. But for how long?

Emerging markets are reeling

The credit shortage has been on display for much of this year. Emerging markets from Turkey to Venezuela and Indonesia through to the Middle East have seen their currencies plunge. That makes their debts more expensive and more difficult to service, raising the possibility of another banking crisis.

China's currency, the Renminbi, has fallen sharply, partly as an attempt to counter the effects of America's trade war. That will have a profound impact on its trading partners and competitors, Australia included.

For now, the fallout has been contained. But with global shadow banking — largely unregulated — swelling to $US160 trillion, the potential for flashpoints to trigger a wider crisis has grown more acute.

On Wall Street last week, few could identify, let alone articulate, the reasons behind the sharp selling.

Back in January last year, however, former Federal Reserve chairman Ben Bernanke outlined his fears about the US Fed reeling in the debt.

"I worry though that, in practice, attempts to actively manage the unwinding process could lead to unexpectedly large responses in financial markets," he wrote in a blog for the Brookings Institute.

This year, there have been two just two conniptions on global stock markets, with the falls in March even more severe than those last week. Given the extent of Wall Street's run in the past two years, they've barely been noticed.

Australian investors, however, find themselves in the unhappy position of being behind the starting point for the year, and close to 20 per cent below the 2007 peak.

Why US investors wish for the worst

After being bailed out by the Federal Reserve in 2008, which essentially has underwritten the longest bull run on Wall Street in history, American investors now expect and demand continued support.

For years, they prayed for bad economic news, knowing that meant the economic amphetamines would keep on coming. Zero interest rates and vast amounts of cash fuelled the boom on markets.

Now America is in recovery, the removal of stimulants ironically could trigger a major reassessment about the value of companies, particularly those which saddled themselves with large amounts of cheap debt.

That has investors on edge and Mr Trump furious. Last week he labelled his central bank "crazy."

Not everyone feels that way.

Pimco boss Mohamed El-Erian, one of the world's biggest investors, said Americans should embrace the recovery and was sanguine about the sharp market falls, a phenomenon he believes will continue.

"It's not surprising to me that we're seeing this," he told CNBC. "The only question is why it took so long."

An uneasy calm has descended upon markets for now. But last week's Wall Street hiccup is a warning shot across global markets about the dangers of huge debts, reduced liquidity and rising interest rates.

What could possibly go wrong?