My last post argued briefly that the financial defaults in the US were unlikely to precipitate a global economic recession. I think that a more substantial threat, perhaps the most severe threat today for the world economy, lies in the occurrence of trade and financial imbalances between the Chinese and US economies. China sells more goods to the US than it buys (it is said to have a current account surplus with the US) and also receives large amounts of investment. So China receives many more US dollars than it spends, and keeps them for future reasons. Some recent year's figures are at http://usa.usembassy.de/etexts/econ/eop/2006/2006-6.pdf
The Chinese currency the Yuan Renminbi changes very little in value against the US dollar because of the Chinese government's decision to keep the currency fixed against the dollar, by buying and selling their dollars and yuans. If the Chinese government decides to sell off its US dollars quickly at some point in the future, then the US dollar's value will have to adjust as quickly, both against the Yuan, but also against other currencies because there will be so many extra dollars available in the world that its value will go down everywhere. The US and other governments could take action to offset the fall, but it would probably be difficult to do so immediately. There would be an immediate shift in terms of trade (the relative cheapness of goods) in favour of the US, but it would take longer for the effect to be felt.
The Chinese have stored up very large reserves of dollars and they continue to accumulate, so the US currency decline could be very sharp. It would be difficult for everyone to adjust to the sudden effects on trade and currencies, and in the time until adjustment worldwide output could decline. Avoiding the possible decline relies on the Chinese government neither requiring nor wanting to sell their reserves rapidly, and the situation seems precarious to me.