Unsteady

Economists call this process “wealth destruction.” That is an apt term to describe what happened this week: trillions of dollars of created wealth simply evaporated as stock markets collapsed across the globe.

Financial analysts, for their part, describe the stock exchanges these days as an “emotional market.” Investors are edgy. They tend to overreact to good or bad news.

The more pessimistic voices say the global financial system is broken. That might be a view easily dismissed as extreme — except that these voices speak from the highest rungs of the World Bank, the US Treasury and the International Monetary Fund. These are voices with a view of things probably superior to what most of us hold.

These voices constituted the chorus that set the mood for the massive selldown we saw this week. There is that dreaded word at the tip of everyone’s tongue: Recession. No one wants to say it outright; everyone half-expects it to happen.

A global recession might not be so frightening. It might be dismissed as a routine cyclical event — except that this one comes so close on the heels of a worldwide financial meltdown just two years ago. We are staring at the real possibility of what, in the jargon of economists, is called a “double-dip” recession.

What makes a “double-dip” recession so threatening?

Imagine a situation where a super-typhoon hits an area immediately after one has passed. Imagine Typhoon Pepeng coming so quickly after Ondoy. The damage tends to be magnified the second time around.

When typhoons come in quick succession, the earth is soggy and the possibility of landslides greater. Evacuees are still in evacuation centers and supplies are bound to run out. Homes have not been repaired and even more vulnerable to gusts. Emergency crews are exhausted and then hampered by damaged infrastructures.

The Great Recession of 2008 ravaged most of the world’s major economies. Much public debt was incurred in the effort to fight that recession with economic stimulus measures. Unemployment is high; consumer demand is weak. The corporate sector is decimated by failures. The financial institutions are deep in the process of rebalancing.

The major economies are weak. The US is grappling with high unemployment. Much of Europe is on austerity mode, part of the general effort to curb public indebtedness. Even China, expected to lead the global recovery, posted a decline in manufacturing output the last quarter. Calamity-prone Japan is nursing a public debt twice the size of its GDP.

Then there is Greece, now so poetically described as the new Lehman Brothers.

For months, the European Union tried very hard to keep Greece from defaulting on its debts. Several bailout packages have been put together to help Greece avert default. Those costly bailout packages were put together not so much to save the Greeks but to prevent a shock to the European banking system heavily exposed to Greek debt.

The European consensus to help bail out Greece is beginning to fray, however.

The disciplined German taxpayers are asking why they have to pay so much to save the carefree Greeks. They are threatening to vote out Angela Merckel’s government, pulling out the strongest peg in the Europe-wide effort to avert a fiscal conflagration.

There is a radical stream of opinion regarding Greece that is actually gaining ground in Europe. Some have concluded that Greece is beyond help. The only really viable option is to cut off Greece from the Eurozone, forcing the country to return to its old currency, the drachma.

That is not such a wild idea. By forcing Greece to return to the drachma, the rest of the Eurozone might be spared from the contagion. It is pretty much like cutting off an infected leg to save the person.

By putting the Greeks adrift, the drachma may then be allowed to depreciate to its proper level. By most estimates, this should be about 30 percent. This means that on top of the tough austerity measures, including drastic public sector pay cuts, every Greek citizen will be 30 percent poorer due to currency depreciation.

This might sound like a heartless solution, condemning the Greeks to a version of economic hell compounded by the certainty of violent riots breaking out. To an increasing number of influential voices, however, this is the only viable thing to do. For many European taxpayers, Greece might as well be sunk into the Aegean Sea.

Dangerous times call for dramatic actions. That is the message now being let out by the leaders of the international financial institutions. No option, no matter how radical, is considered off the table.

We might not be ready to concede that the global financial infrastructure is now unhinged. It is, however, by every account unsteady.

All that is happening in the global economy will, no doubt, affect our own economic prospects.

In a way, we have made ourselves more vulnerable to a double-dip global recession because, by way of underspending, we have forced down our economic growth for three consecutive quarters. This is a government-induced decline that happens at a time when government ought to have adopted counter-cyclical measures to prop up our growth rate.

While disturbingly dark clouds gather on the economic horizon, we are busy debating over which language to use in Senate debates. The President breezes back into town boasting about the most polite remarks made to him by foreign leaders, vainly making so much out of so little.

It is much like listening to Nero fiddle.