KEY POINTS:
The flow of economic news from the United States keeps getting worse.
Consumer confidence has plummeted.
And little wonder. It is not just the housing market.
They keep turning up arcane but huge markets on Wall Street that hardly anyone has heard of - credit default swaps is the latest one - which have sprung up to peel risk off transactions and transfer it to someone else.
As the US economy slows those guarantees are more likely to be called on but like securitised sub-prime mortgage debt no one is entirely sure who is holding the baby or how heavy the baby will turn out to be.
So the news from the States may get worse before it gets better.
A sobering paper by economists Kenneth Rogoff and Carmen Reinhart compares recent US history and the run-up to the world's worst financial crises since World War II and finds striking similarities. (New Zealand's 1987 crash, by the way, did not make the top five, but was among the top 18.)
They look at how much house prices and share prices had risen before those bubbles burst, how strong real per capita economic growth was, the size of current account deficits and the growth in government debt.
On all but the last indicator they find the US looking as bad or worse than the five worst cases.
Oh dear.
The question remains, however, how much we need to care.
Westpac's economists are taking an optimistic view.
Traditionally, they say, when the US sneezes the world catches a cold and New Zealand with its small size and narrow export base tends to get pneumonia.
But times have changed.
Global growth will be weaker, they believe, but not materially so in those parts of the world where growth in demand for our exports has been coming from and which have been driving our export commodity prices higher.
The US and Europe account for a shrinking share of the world's economic output, while the importance of China, and to a lesser extent India, has climbed.
Developing countries have accounted for about two-thirds of world growth in recent years.
That means a lot more people who can afford to buy their children icecream.
It is not just commodity exporters who benefit. Manufacturers' largest export market, Australia, is booming because of strong prices for the commodities it produces.
Much of the big increase in trade within Asia has been in intermediate goods - bits of things - with final goods still going largely to Western markets.
So the Westpac economists do not dispute that slowdowns in the US and Europe will have an impact in Asia.
But they are in the "decoupling" camp which believes there is enough heft and momentum in Asia to keep the impact moderate, and the flow-on effects on New Zealand and Australia moderate too. They estimate reduced exports will knock 1.2 percentage points off China's growth this year.
The World Bank takes a similar view. It has cut its pick for China's 2008 growth by 1.8 percentage points, but that would only pull it back to a not inconsiderable 9.6 per cent.
The correlation between growth in the US and growth in other countries has grown a lot weaker in recent years, not just China but Australia and New Zealand.
Asia and Australia between them are more than twice as important as trading partners for New Zealand as the United States and Europe combined.
And the oil exporting countries take a growing share of New Zealand's exports, more in fact than China.
That brings us to the second leg of Westpac's it-may-not-be-so-bad argument which is that, despite all the talk of a credit crunch, at a global level liquidity remains easy.
"There's no shortage of money out there," the bank's chief economist, Brendan O'Donovan, says. "It's where it is sitting that has changed."
The flipside of the large current account deficits which the US and other Anglo-Saxon economies (including New Zealand) have run in recent years is large current account surpluses mainly in east Asia and the Gulf.
The sovereign wealth funds and other custodians of these accumulating trillions are no longer content to just buy US Government debt with them and have taken stakes in Western banks and resource companies. Remember the Dubai bid for Auckland airport?
Because Asian central banks are reluctant to see their currencies rise quickly they are keeping interest rates low. "Throughout Asia we are seeing real interest rates which are flat or even negative," O'Donovan said.
While bigger risk premiums are now built into interest rates in Western countries, that is not a problem for countries running current account surpluses.
"They haven't been accessing wholesale markets for funding. They are the funders. So increased premia are more of a benefit to them."
The big current account deficits and surpluses which have built up in recent years, representing imbalances in the use and supply of the world's savings, were not sustainable.
Correcting such imbalances is never painless.
But New Zealand and Australia may get away with less painful adjustment periods than the US or Britain because world prices of the kinds of things we export, compared with the kinds of things we import, have improved. In New Zealand's case the terms of trade are the most favourable for 34 years, boosting national income.
"So in some ways we are being bailed out of our profligate ways and the day of reckoning is being postponed," he said.
Other economists take a less sanguine view of the outlook.
Consensus forecasts for growth among New Zealand's trading partners, weighted for their relative importance to us, is now expected to be 3.2 per cent, 0.4 percentage points weaker than the consensus last December.
O'Donovan readily admits that you can also plausibly describe a darker future in which the vortex of a US recession sucks the rest of the world down with it.
But at this stage there doesn't seem to be anything inevitable about that outcome.
