Global economy: The dark side returns?

BOSTON — Do you feel it?

It sits uneasily in your gut, like a greasy Greek gyro washed down with two shots of ouzo.

If you've been following the global business headlines this week, you know what I'm talking about: a sickly, sinking sense that the global economy is going to hell.

Again.

You have reason to be worried.

That's because amid signs of growing economic weakness, more governments around the world are advocating doing less.

First, take in these ugly facts:

U.S. consumer confidence fell sharply in June, as the job market remains anemic. The S&P 500 Index plummeted to an eight-month low. Liquidity fears hit major European banks. Japanese exports were weaker for the third straight month. Even China's leading economic indicators were revised sharply lower, indicating new worries for that global economic engine.

It got so bad that New York Times columnist Paul Krugman and Yale economist Robert Shiller were both throwing around the dirtiest word in economics: depression.

All of this followed a do-nothing G20 summit last weekend in Toronto, where global leaders ignored President Obama's calls to spend more to boost their sagging economies.

"A number of our European partners are making difficult decisions," Obama said. "But we must recognize that our fiscal health tomorrow will rest in no small measure on our ability to create jobs and growth today.

Instead, the G20 nations vowed to cut their annual deficits in half within the next three years.

But Obama makes a compelling point, and one that was lost on world leaders back in the 1930s to the detriment of the world.

In times of economic crisis, government needs to play a larger role in stimulating demand. That Keynesian idea, of course, is what underlay the Obama administration's $787-billion stimulus deal last year, as well as the collective billions of euros, yen, yuan and other cash that nervous governments around the world threw at their stalled economies.

And it worked.

But in recent months, as the shock of global economic calamity lessened, the mood has shifted. In the face of petulant markets and worried voters (thank you, European debt crisis) the prevailing urge now is to rein in spending and hope for the best.

In other words, fear of deficits has replaced fear of depression. Austerity is the new religion.

It's an economic debate worthy of the high art of rap, with Keynes facing off against the classic economic liberalism of Friedrich Hayek:

Funny stuff, for sure. But it's also deadly serious.

The world economy, once again, stands at another dangerous crossroads.

Are the latest figures just blips on a very long road to recovery? Or do we face what Krugman is already calling "The Third Depression?"

The signs are not encouraging.

While the U.S. economy — the world's largest — is growing, it's anemic. Indeed, first quarter GDP growth was revised downward this week from 3 percent to 2.7 percent. That's about half the growth rate of last year's fourth quarter rebound.

Investors are nervous. Businesses are nervous. Home buyers and other consumers are nervous.

Even more troubling, of course, is the most important factor for confidence in any economy: jobs. The U.S. lost 8 million of them since the recession began in 2007 — its worse performance since World War II.

We'll find out the latest clue on Friday, when the U.S. labor department releases its unemployment report for June.

Don't be surprised if your stomach lurches.

Again.