By my count, over the course of the past 40 years there have been six major seismic shocks that put the financial markets, and then the economy into a tail spin, with the “great recession” of 2008 being the granddaddy of them all. Each shock was precipitated by events that were not forecasted, but were obvious in hindsight. Over the past few days we have yet again witnessed a shock that set the financial markets roiling, and this time is was all about China.
Aside from the United States, China's economy outweighs every country in the world, a behemoth that has had a big hand in driving our economy, not to mention Chinese funding of our debt through massive investment in Treasury's. The wrinkle is that on the transparency front, China remains distinctly an emerging market, with murky politics, unreliable data and opaque decision making. For example, two weeks ago the Peoples Bank of China devalued its currency, a move that began to spark the current market turmoil, to boost exports.
The bottom line is that we just had a wake-up call, and we may have had a preview of the next seismic shock, this time in the game of Chinese Checkers.
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