Worse

This was expected. When the US Congress showed some reluctance at bailing out the three giant Detroit automakers, stock markets around the globe retreated.

Yesterday, the Philippine Stock Exchange shed over 4%, reflecting the bearish sentiment sweeping other markets. The previous day, the New York Stock exchange fell even more massively, responding to the apparent reluctance of the US Congress to bail out the automakers.

The proposed bailout represents an extreme dilemma for the US government.

If the Detroit automakers crash, millions of jobs will be lost in the US economy. The crash could pull down the American economy even more.

But, as the US legislators pointed out, without radically changing their business model, the Detroit giants will likely still continue to fail. More good money will have to be thrown after bad. There is not enough cash to plug this gaping hole in the US industrial sector.

For many, despite the broad economic injury that Detroit’s failure will cause, bailing out the three biggest automakers has to be a reprehensible idea. Taxpayer money will be thrown in to compensate for an utter failure in managing the big firms.

There is moral hazard in doing this. Capitalist ethics dictates that excellence be rewarded and sloppiness penalized. The three automakers want their sloppiness to be rewarded with publicly-funded relief.

Besides, bailing out the Detroit Three will open the floodgates for distressed enterprises from all over America, including cash-strapped state governments such as California’s, to come to Washington pleading for cash relief.

It did not help the case of the automakers that their CEOs flew to Washington in their respective private jets to beg money from the lawmakers. That was such an insensitive thing to do. It smacks of corporate profligacy in the midst of financial distress, something akin to AIG’s vacation bash a week after receiving federal cash relief.

Still, reprehensible as the idea of bailing out the automakers might be, the social costs of not doing so is pretty stiff. Decision-makers in Washington are now grappling with the realization that the cost of bailing out Lehman Brothers last September, effectively stopping the domino tumble in motion, was vastly cheaper than the cost of bailing out nearly the entire financial sector in the aftermath of the Lehman fold-up.

Now, there seems to be no ceiling in the cost required to restore the pre-September financial order in the US. And there seems to be no bottom in the free fall of stock markets worldwide in the wake of the clear signs the a global recession has indeed set in.

There is no theory nor template to guide us through the present global economic predicament. Each government, each decision-maker and each business leader must, as a matter of necessity, react to the unfolding of events on the basis of what appears pragmatic in the very short term.

No one is nursing growth anymore in these circumstances. Everyone is merely trying to cut losses and stop the bleeding.

Anyone who stands up and insists on an ideological principle or philosophical orthodoxy in the wild swirl of events is in danger of becoming financially extinct.

The most disconcerting thought at this point is that things could become even worse before they start to become better.

In October, after the US government decided on a $700 billion bailout package, we began to nurse delusions about having finally hit the bottom of this gruesome episode. The US bailout was, after all, supplemented by the concerted action of European governments and a global marking down of interest rates to spur economic activity. This was capped by last week’s massive economic stimulus package assembled by Beijing to stoke China’s economic growth.

The exuberance turned out to be premature. The US, the Euro Zone and Japan have slipped into recession this month. We are facing a global economic slowdown of epic proportion. The principal barometer of the malaise is the price of crude oil, which more determinedly slipped below the $50 level this week.

No matter how much the OPEC cartel tries to manipulate oil prices by cutting back on supply, the oil price regime will likely remain at about this week’s levels into the foreseeable future. With the global economic slowdown, there has been a massive drop in oil demand — much more than the OPEC might be willing to cut supply.

The greed of the oil producers pushed up oil prices the past two years to levels that nearly guaranteed a global recession. The low price of the product today is penalty for that greed.

Most economies, including ours, will likely see an unprecedented swing from high inflation to crippling deflation.

Do not cheer the dropping price of oil too avidly. It is the tip of a large iceberg of price deflation that will squeeze out profits, dry up investments and wipe out jobs.

The tip of the iceberg might seem to be happy news. But the rest of what it represents is an inexorably large piece of bad news.

The night is not entirely black, fortunately. Against the odds, the volume of remittance inflows increased rather than decreased last month. That means we can expect only a marginal decline in domestic consumer demand — or even an increase, to help compensate for the nosedive in our export revenues.