January 11th, 2016

China at the economic crossroads

Economics & Politics

SEVEN YEARS AFTER the failure of Lehman Brothers triggered a panic on Wall Street and sent the world economy into a tailspin, a free fall of the Chinese stock market has set off a new alarm. China’s stock market travails are also pulling down US and European stocks. Equity markets worldwide shed more than $2 trillion in value last week.

The problem with financial markets is that they dramatically amplify the more modest shifts of the real economy. In 2008, the US housing market was cooling after years of a housing bubble. The normal result would have been a growth slowdown, perhaps a mild recession. Yet the failure of Lehman Brothers in September 2008 led to a financial cardiac arrest. Lending between banks suddenly stopped; working capital for businesses dried up; and the world economy went into a tailspin.

Read the full article at The Boston Globe.

 

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