Dean Baker – The China Syndrome: Bubble Trouble

The financial markets have been through some wild and crazy times over the last two weeks, although it appears that they have finally stabilized. The net effect of all the gyrations is that a serious bubble in China’s market seems to have been at least partially deflated. After hugely over-reacting to this correction, most other markets have largely recovered. Prices are down from recent peaks, but in nearly all cases well above year ago levels. But the stock market is really a side-show; after all back in 1987 the US market fell by almost 25 percent for no obvious reason, with little noticeable effect on the US economy. The more serious question is what is happening with the underlying economy, and there are some real issues here.

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