In age of globalization, is this a global panic?

Oil prices have now dipped back near $100, other commodity prices are in a free fall, interest rates are down, and the dollar is up smartly against just about every currency.

From one angle, that all looks to be good news. Since food, energy and commodities were behind the recent surge in prices, inflation suddenly looks like less of a threat, particularly since a strong dollar also lowers the prices of other imports. Lower energy prices take some of the pressure off such hard-hit industries as autos and airlines, and off households that have been forced to cut back. More growth, less inflation – nothing to complain about there.

But what if it weren't that simple?

What if what's really happening is that sky-high energy and commodity prices weren't a reflection of a fundamental shift in supply and demand, but merely another speculative investment bubble?

And what if that bubble burst because the investment herd finally realized that double-digit annual economic growth in developing countries was not a sure thing – that it was actually unsustainable, the result of underpriced currencies and an investment boom that had created bubbles in asset prices and economic output?

That, of course, would be a very different story. It would explain why prices for just about every financial asset you can think of are now falling all around the world, sending desperate investors fleeing to the apparent safety of U.S. Treasury bonds and the U.S. dollar. It would explain why the slowdown in the United States had spread to other once-bubbly economies such as Spain, Ireland and Britain, to commodity-dependent economies such as Russia, Canada and much of the Middle East, and to export-dependent economies such as Germany, China and India. And it would explain why the financial turmoil that began on Wall Street had finally gone global.

To put the question slightly differently: Are we witnessing an overdue unwinding of economic imbalances and market excesses, or are the markets and the global economy now caught in a vicious cycle of panic selling and de-leveraging that has begun to spin out of control and threatens to take the global economy down with it?

I'd love to be the optimist on this one, but with each passing day it feels more like global contagion. Here at home, the government has taken extraordinary steps to rescue failing institutions, while governments abroad have begun to move aggressively to prop up their falling currencies. Money is rushing out of developing markets at a rate not seen in a decade, driving down major stock indexes 30, 40, even 50 percent on the year.

For the first time in years, auto sales were down last month in China, while Infosys Technologies, India's outsourcing giant, warned investors of disappointing sales growth. And what does it tell you that, among major economies, the lone bright spot is Brazil?

It's hard to be an optimist when the United States continues to report near-record trade deficits and when its government is on a path toward a $500 billion budget deficit. Lower oil prices should quickly help to cut both deficits, but a rising dollar and slower export growth push things in the opposite direction.

On financial markets, meanwhile, you have near-record spreads between interest rates on risky bonds and loans and those on U.S. Treasuries. You also have wild hour-to-hour and day-to-day swings in the price of financial assets in response to the latest rumors about hedge fund losses or any shred of news about WaMu or AIG. Want to finance a shopping center or corporate takeover, float a junk bond or new stock issue, or securitize some vanilla-variety college loans? Forget it.

As one market-savvy economist told me this week, “We've been at this for more than a year already and it's not getting any better. People still don't understand what is happening.”

The next chapter in this saga is expected to be written over the weekend with the government-orchestrated takeover of Lehman Brothers, the latest financial institution to get trampled by the retreating herd. But it's unlikely Lehman will be the last to get hit. We are nowhere near the resolution of a financial crisis that has been years in the making and that has only begun to have its impact on a newly globalized economy.