http://online.wsj.com/public/article/0,,SB114831232486159604-tKBaxrukswA_5mGP32gksBX1jIE_20060529,00.html?mod=regionallinks

If the tale of today's international economy were handed down as a fable, it might be called "Global Goldilocks Meets the Three Bears." (Hint for investors: Brace yourself for an unhappy ending).

Goldilocks -- a.k.a. the world economy -- has been enjoying a not-too-hot, not-too-cold 4%-plus growth rate over the past four years thanks to steady prices, continued U.S. dynamism and emerging markets' new wealth. As Raghuram Rajan, the International Monetary Fund's research director, said while increasing this year's projected growth to 4.9%: The world "never had it so good."

Yet lurking behind last week's 2.1% decline of the Dow Jones Industrial Average and an even more troubling falloff of Morgan Stanley's emerging-markets index of 11% over the past two weeks are growling bears threatening to spoil the fairy tale, says Nouriel Roubini, a New York University professor who heads Roubini Global Economics.

Mama Bear is increased energy insecurity, a beast spawned by rising oil prices but made more dangerous by escalating political risk afflicting almost all the major producers: Iran, Iraq, Nigeria, Venezuela, Russia and Saudi Arabia.

Papa Bear comes in the form of deflating housing prices as they release the hot air of easy money. The lost wealth effect of inflated property values, whether gradual or sudden, could unsettle not only the world's most important consumers -- Americans -- but also hit a number of countries with the similar problems of high debt and low savings.

Baby Bear is inflation, whose sudden growth sparked the global market selloff. The only treatment, higher interest rates, could slow corporate growth and consumer spending.

The question is whether last week's market swoon was a short-term correction or the sort of overdue awakening to risk that economists have long predicted. Mr. Roubini believes markets are finally responding to "unsustainable global imbalances" -- symbolized most starkly by record U.S. deficits and China's parallel surpluses -- finally driving down the dollar's value and raising inflationary prospects.

Whether or not you agree we have reached a turning point, it is hard to argue with the second message of last week's jitters. What burst was the notion that bad news in the U.S. doesn't necessarily mean trouble for the world economy anymore. The underlying logic has been that world growth prospects had decoupled some from the U.S. because emerging markets had gained such importance, particularly in Asia.

The problem with that argument is that U.S. bears -- oil prices, property prices and inflation -- don't respect geographic borders. In some cases, they pose more danger to countries other than the U.S., and particularly to the more-volatile emerging markets.

To be sure, economic doomsayers have been proved wrong so often in the past few years that it is risky to bet against the remarkable resilience and flexibility of the U.S. and global economies. That said, the changing nature of these bears makes them harder to dismiss.

Bear #1: Oil Prices. The best argument against this threat is that prices have risen to $70 a barrel without slowing global growth or igniting inflation. So who cares? Demand has driven oil prices, and increased demand is a sign of a healthy economy.

Two factors shift that equation.

The first is political. Nigeria faces internal threats. Iran faces external dangers due to its suspected nuclear-arms ambitions. Venezuela is locked in a political struggle against U.S. interests across Latin America. Extremism festers in Saudi Arabia. Iraq remains volatile. So, political risks will continue to grow even as supplies remain tight.

Second, U.S. consumers are more likely to reduce their spending the longer energy prices stay high and the more they worry about property values.

Bear #2: Real-estate bubbles. This threat is more global than is often realized. It has become the symptom in many countries across the world that, during this long period of low interest rates, have developed common problems of overvalued currencies and large current-account deficits: the U.S., Britain, Spain, Turkey, Hungary, New Zealand, Australia and more. Market pressures have grown particularly on such nations and investors worry more about risk exposure.

Currencies are trading down in the U.S. and several other such economies, followed by withdrawals from stock and bond markets. The world's attention has been on the falling U.S. dollar and stocks, but Turkey's lira, for example, is off more than 20% against the euro since March and shed 9% of its value last week and an additional 8% yesterday.

Bear #3: Inflation. It was last week's release of U.S. April consumer-price data that triggered global shock waves. The reason lay in the strongest indication yet that prices were rising in a more sustained manner, particularly for services, a large part of the U.S. economy in which higher costs aren't quickly reversed.

The underlying concern is that U.S. Federal Reserve Chairman Ben Bernanke might be so eager to establish his anti-inflation credentials that he inadvertently helps snuff out the U.S. five-year expansion.

That could turn our three bears into a triple whammy for U.S. consumers. In the fairy tale, our star gets away before the bears can exact revenge upon her for upending their domestic tranquility. Global Goldilocks's safe escape, however, depends on the wisdom and political determination to simultaneously ensure energy security, reduce deficits and battle inflation.

Whether the markets' current gloom turns into a longer-term downturn depends on investors' wager between Mr. Roubini's bears and global leaders' ability to tame them.

How bad do you think matters could become for the U.S. and global economy?