On February 14th, a manufactured day devoted to romantic love, Wall Street wasn’t interested or feeling any good vibes: The Dow, as well as most of the other major stock markets around the world, finished down on recession fears. Why so spooked? For one, Federal Reserve chairman Ben Bernanke elected to announce that, despite recent encouraging news on the market floor, the sub-prime crisis has not remained contained as he had previously predicted, but had spread to other sectors of the economy, in particular consumer spending. The recent contraction in new jobs (a loss of 17,000, the first such loss since 2001, was reported for the last quarter of 2007), coupled with the deflated housing market, seemed a bit distant until the Fed’s announcement. Fortunately, more rate cuts are sure to be on the way, but as news of rate cuts always implies that the economy is sicker than the average joe can tell, investors became more scared than reassured.

Another factor behind the Valentine’s Day losses was the continued bad news out of Wall Street, with UBS reporting over $11 billion in write-downs. Even though other markets finished down as well, most of the selling trades were related to the slowdown in America, which begs the question: How decoupled are emerging economies and other developed nations from this supposedly American downturn? In the banking world, the risk is spread so thoroughly because pf how easily US mortgage debt could be repackaged into seemingly safer securities and sold to other nations. Evidence can be seen in the recent government bailout of troubled German bank IKB and UBS’s increasing writedowns. It can be concluded that rather than spreading risk more effectively, modern investment vehicles are making debt more difficult to track down (and thus more expensive), and most firms are loath to cooperate because of their accountability to shareholders.

In other sectors, the weakened dollar makes it clear that US spending, if not growth, still wields considerable stopping power on emerging economies. The only things that stand in the way of the US slipping into recession are the weakened dollar and the recent economic stimulus tax break signed into law recently. This tax rebate, when combined with initiatives for small businesses to invest, has the potential to contain the drop in consumer spending. While it was signed into law in record time, it may still have been implemented too slowly to have maximum impact on the recession. It surely increases debt, and now only time will tell. Without some more effort on the part of central banks worldwide, some fallout is the best possible scenario for all concerned. At worst, a sharp slowdown is not remotely out of the picture.

Many developing economies are already taking advantage of both the housing downturn and the dollar’s fall by investing, often in the form of sovereign-wealth funds, so their turnover is directly linked to the shares in the troubled financial sector. This means that, for once, these economies are benefitting from other country’s malaise for the first time. While it may be difficult to swallow, the US is poised to bounce back quickly with a little help from it’s would-be friends.