there’s a lot of hoping and praying going around that asia has truly decoupled, i.e. weaned itself, from the u.s. economy. ibig sabihin kasi, it would be possible for the rest of the global economy to roll on despite the u.s. recession (ok, slowdown, maybe). china and india, the new big trading partners of the world, could take up the slack, provide what the humungous u.s. consumer market used to provide but can provide no more because its credit has run out (sub-prime pala in more ways than one).

it is true that we have decoupled somewhat from the u.s. economy, but just a little. cielito habito writes:

If we count China and Hong Kong as one country (even though the trade statistics still separate the two), the US has already been dislodged as our largest export market, whose 17-percent share of our exports is now just second to China-Hong Kong’s 23 percent. Contrast this to only 10 years ago, when the US took more than one-third (35 percent), while China-Hong Kong took less than one-twentieth (5 percent). Our vulnerability to a US recession via an export slowdown is therefore far less than what it would have been 10 years ago.

“But let’s look more deeply into the details, particularly the destinations of our top exports. Electronic products, which account for two-thirds of all our export earnings, are now well distributed among our top four buyers for these products, with the US taking only 14 percent. China-Hong Kong takes 23 percent, Japan takes 15 percent, Western Europe takes 14 percent, and even Singapore and Malaysia take sizable shares of about 8 percent each. On the other hand, the US takes up the bulk (79 percent) of our garments exports, our second (but a far second) largest export. Mineral exports to the US hardly matter, with most going to our neighbors. Woodcraft and furniture, another top export earner, mostly go to Japan, with only 20 percent going to the US.”

problem is, all these markets to which we export goods – japan, western europe, china, singapore, malaysia – also have sizeable exports to the u.s. chances are, if they lose that market, they’re going to cut back on our products, too. and really, our exports have been down since the peso started rising (falling), so we have to look elsewhere for salvation.

such as interest rate cuts maybe, like the federal reserve has done to encourage entrepreneurs and consumers to keep on borrowing (don’t stop investing, don’t stop spending). but like the bank of england, our bangko sentral is wary of inflation, even if the IMF mismo advises “monetary easing,” if we are to withstand the global repercussions of the credit crisis.

in fact, the IMF is hitting the panic button:

The intensifying credit crunch is so severe that lower interest rates alone will not be enough “to get out of the turmoil we are in”, Dominique Strauss-Kahn, the managing director of the International Monetary Fund, warned at the weekend.

“In a dramatic volte face for an international body that as recently as the autumn called for “continued fiscal consolidation” in the US, Dominique Strauss-Kahn, the new IMF head, gave a green light for the proposed US fiscal stimulus package and called for other countries to follow suit. “I don’t think we would get rid of the crisis with just monetary tools,” he said, adding “a new fiscal policy is probably today an accurate way to answer the crisis.”

on the ball naman si albay governor joey salceda, top economic adviser ni gma, who brooks no arguments: a storm is coming, thus this Php75 billion stimulus package:

• A P16-billion expansion in income tax deductions (to benefit middle-class working families).

• An P8-billion rebate to households consuming less than 200 kilowatt hours of electricity a month.

• A P51-billion increase in government spending this year (P15 billion for increasing agriculture production, P16 billion for infrastructure, P12 billion for education, P4 billion to increase PhilHealth memberships to 5 million, and P4 billion for mass housing).

“We must implement the economic equivalent of a preemptive evacuation. Domestic growth is our first line of defense against the incoming virus of global credit and corporate earnings recession. Not because it is fashionable, but because there are fundamental arguments for some kind of recession-proofing for the Philippine economy to preserve the gains of 27 uninterrupted quarters of GDP expansion,” Salceda said in an interview.

problem is, salceda’s package is not too stimulating. sana rebates across the board for all taxpayers. and why not suspend VAT? masyadong malaking revenues ang mawawala sa gobyerno? so why not suspend debt payments? this is a good time as any for a moratorium, if the IMF really wants to help.

clearly the world is trying to remain optimistic (don’t panic!) about the state of the u.s. (global) economy, but that’s only because the federal reserve jumped in with that hefty interest rate cut just when it did, in the nick of time sort of, or (i suspect) stock markets everywhere would have crashed. and with another considerable rate cut expected next week, and bush’s promised stimulus package of tax rebates, the consensus seems to be that the optimism will continue for some time, even if markets and the dollar remain volatile.

interesting, what’s going on in the world’s financial capital, the giant economy to which all other economies are hinged – the federal reserve cutting interest rates so people can go on borrowing and buying houses, and bush saying the fundamentals are sound (sounds familiar) sabay give back cash to taxpayers so that they can go on spending, consuming, investing, and of course giving banks and speculators, i.e. the finance industry, time and money to get their act together.

it’s all artificial, of course, quick fixes that don’t address the root of the problem, which is that it’s a faulty economic system, this globalized free market no-regulation kind of capitalism. not sustainable.

writes geoff colvin of fortune magazine:

I remain a huge fan of globalization. It will help more people than it hurts, in America and worldwide. But it will certainly produce new challenges, and today’s economic situation looks like one of them.

The reasons we’re in a major slowdown center on U.S. consumers, who drive the economy. Through the past six years they’ve been the most maniacal spending machines the world has ever seen. Stock market wobbles, rising interest rates, staggering personal debt, war, floods, hurricanes – nothing could slow them down. That was mainly because the value of their largest asset, housing, kept going up, and because they were confident about their jobs. As long as their home equity looked like a piggy bank and their paychecks looked solid, they just kept buying, and America’s economic engine just kept turning.

Of course, home values have been declining for quite a while, and more recently the jobs picture has deteriorated markedly. What really slammed the door for many economists was the December employment report, which showed the unemployment rate jumping to 5% and a tiny number of jobs (18,000) created. With the home-equity ATM closed and paychecks looking iffy, it seems consumers have finally been forced to put the credit cards back in their wallets. Sure enough, after the holiday season a wave of retailers reported year-over-year sales drops for December. Department-store giant Macy’s (M, Fortune 500), for instance, saw a 7.9% drop in same-store sales and noted an overall decline in consumer spending as a contributing factor.

Now what does any of that have to do with globalization? Quite a bit. Consider first the housing bubble. It was fueled by extraordinarily cheap money that lenders were virtually throwing at borrowers. As a result, the prices paid broke free of any connection to plausible values in relation to rents or total housing supply.

That superabundance of cheap money didn’t come from Americans, since we haven’t been saving for years. It came from the rest of the world, from what Fed chairman Ben Bernanke calls the “global saving glut.” While we were spending, nearly everyone else on earth was saving at unprecedented rates, and those hundreds of billions of dollars made their way here. Not that anyone beat us with a stick and made us borrow the money or use it to pay ridiculous prices for homes; we can’t blame anyone but ourselves for that. But the fact remains that without the global saving glut, we couldn’t have had a housing bubble or the resulting housing collapse.

The jobs picture also has an important global dimension. For a majority of Americans, the most significant fact of globalization is the advent of a large-scale global labor market. Millions of people around the world can now compete for millions of U.S. jobs. Never mind that the number of jobs that actually get outsourced is relatively small. What matters is the mere presence of those lower-priced workers. They hold down the pay of high-priced Americans and constantly entice employers everywhere to create new jobs over there rather than here. Thus, the problem isn’t so much jobs being sent abroad but jobs that never show up here at all.

To repeat, globalization remains a net plus for America and the world. But it means that we Americans must rethink our role in the world economy. We used to be the locomotive that pulls the train, and to a large extent we still are; Chinese factory owners will not be happy about a U.S. slowdown. But while we still influence the world economy, the new reality is that the world economy increasingly influences us.”