When the United States economy sneezes, the whole world catches colds.

Count not Uncle Sam out, the US economy still accounts for 22.5% of the world economy and American consumers spent US$9.5 Trillion every year representing demand for goods produced in America and elsewhere.

Many countries like Mexico which depends on 40% of export sales on American whims and whose citizens merely cross borders to get odd jobs in the States is going to get clobbered.

Last week the United States wobbled on its knees - the October real estate sub-prime mess exposing the weakness of the US economy. The damage the sub-prime crash has literally wrecked the banking and real estate sectors with real losses.

In a sign that signaled the seriousness of the threat of recession - the US Federal Bank cut the US prime interest rate by 75 basis points - from 4.25% to 3.5% - the deepest single cut in 20 years. The cut was meant to encourage banks to re-lend again to blue-chip companies and reactivate an anemic market.

The United States recession may not be as serious as the Depression years in the 1920-30s but the impact is real. Stock prices are down and unemployment is up.

Construction deals are fewer and long term rates lower than short - term rates: indicating fear of the immediate present.

The USA also did a humongous US$ 150-Billion tax package to loosen money into the hands of consumers to jumpstart the economy. But as the Wall Street Journal wisely said: "Easy money is not the elixir of life" that will renew confidence of business to invest big in the United States at this time - and improve the employment ratios.

It is noteworthy that US$150 billion is almost the size of the entire Philippine economy - and may yet be too puny to stop the recession in Mighty America.

Experts predict that if the American malaise contaminates major industrialized nations to a zero growth - the results will half the GDP growths of all developing nations, including RP. The Philippines had priced itself as having grown near 7% GDP in 2007.

(Developing nations are where 85% of the world population lives).

In the Depression years, the American president exhorted his people "There is nothing to fear but fear itself." It is anticipated that the Americans' own fear of a recession will be a self-fulfilling prophecy.

The economist-President GMA quickly reacted that the country will not be affected since the Philippines GDP growth was not export-based but domestic oriented, particularly Government infrastructure. The corrupt vultures which had made the Philippine tag as "the most corrupt in Asia" are therefore again salivating.

Mega projects protected by Executive Agreements - without the threat of audit - will again flourish in gay abandon. The Philippine economy will grow on the burdened backs of Filipinos who will eventually pay all the loans of these projects - while the contractors and corrupt government officials make obscene bay.

GMA also said the Philippines will be least affected since the Philippines now exports only 18% of its goods to the USA compared to 28% back then in 2001. It is a short sighted view that fails to recognize that the other countries who will be negatively affected by the US recession will also not buy as much Philippine goods and services as before. It is almost impossible to "decouple" any economy from the impact of American's recession.

Without sounding alarmist, we are worried that if the USA recession becomes a hard-core reality soon, the Philippines will suffer some economic debacles.

The stock market will falter dependent as it is from foreign "hot money." Interest rates would likely rise to reflect the growing risk of lending to companies which could affect inflationary rate targeted at only 2.8% in 2008.

American company losses might reduce the business of Business Outsourcing (call centers) to the country (second biggest next to India) and the pressure to keep employment in the USA high will challenge the Yankee wisdom of outsourcing jobs to countries like the Philippines.

American dollar remittance to the Philippines will be reduced. But the continued appreciation of the peso to P37:US$1 as forecasted will make available (less) Philippine pesos for consumer spending and investment and smaller than they were at rates of US$1 to P56 last year.

This could lead to smaller volume purchases of cars and real estate buildings which are dependent on OFW money. Smallest real estate companies could collapse from weak market demand. Large Philippine banks and insurance companies who invested in commercial papers linked the US sub-prime market could suffer losses.

How large that could be will foretell the strength of the Philippine financial system - circa 2008. Will this happen?

The Finance Department, BSP and the NEDA had come out strongly in defense of the Philippine economy - that her strong "economic fundamentals" with a huge US$ 34-Billion dollar reserves - will enable the country to withstand the impending USA recession.

This time let us all hope that prophecy will also be self-fulfilling.

But how much confidence do investors have today in the Philippines? How much trigger-happy are consumers today enough to make their purchases now rather than postpone them?

The next few weeks will be crucial. Let us watch what happens in Washington first.