What does China mean for U.S. stock markets?
The drama of last week's stock market declines at home might have originated in China's currency market. At least, most of the media are pointing fingers that direction. But a dose of common sense is important here. The changes in China are good for the U.S. and tough for the Chinese government.
What the U.S. media doesn't provide is a sense of scale. Chinese imports from America amount to less than 1% of the U.S. economy.* If the entire Chinese economy went to zero, would it really affect the U.S. economy that much? It's approximately equivalent to Walmart declaring bankruptcy. America will still be here with or without Walmart.
Additionally, China's government is starting to allow its currency to devalue. This means Americans can buy more Chinese exports at a lower cost. China is concerned that if it does float its currency, it will devalue even further. Do you see how this could benefit American companies?
We must focus on common sense and perspective. Common sense says markets go down, for brief periods of time, for unpredictable reasons, followed by fast and unpredictable growth. Cheer these declines, if you can, because it means the rally from the depths of 2008 might continue.
So what does drive China's economy? The complex dynamic of today's market instability is a continuation of the financial crisis of 2008, which industry expert George Friedman thinks was never resolved for the Eurasia region--one that is home to five billion of the world's seven billion people. Click here to read Friedman's in-depth article on the topic.
When we look back at January 2016, we'll have a longer-term perspective. Perhaps common sense will take hold and we'll see that China's currency is merely something the media grabs hold of to explain the unexplainable: stock market volatility.
*Just for fun, do the math yourself. America is big and strong. $160 billion is China's imports. $18 trillion or $18,000 billion is the size of the U.S. economy. Sources: