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How will China’s volatile stock market affect the U.S. economy?

January 9, 2016 at 5:29 PM EST
The crash in the Chinese stock market this week unnerved investors around the globe, as the world's second largest economy suffered from volatile trading and falling currency. NPR Senior Business Editor Marilyn Geewax joins Hari Sreenivasan to discuss the country's economic woes and the effect on the U.S. economy.
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HARI SREENIVASAN: When China’s stock market plunged 10 percent last week, it had ripple effects around the world.

In the U.S., the Dow Jones industrial average dropped more than 1,000 points, losing 6 percent of its value. China still has the world’s second largest economy, but its currency has been devalued. And it appears to be experiencing a real estate bubble. The signs of a financial crisis are in some ways reminiscent of the conditions in the U.S. eight years ago.

Yesterday, I spoke with Marilyn Geewax, the senior business editor for National Public Radio, to discuss China’s economic woes and their effect on the U.S.

There’s a conversation Judy Woodruff had with the labor secretary, Tom Perez, about a very strong jobs report number and really a series of long, strong jobs reports numbers. So, we have some reasons to be optimistic about the U.S. economy.

But then here was the last week, where our stock market responded so closely to China.

MARILYN GEEWAX, National Public Radio: Right.

That’s really the question that everyone is trying to figure out, is, is the U.S. economy, the real economy, the people who are just doing their jobs every day in the United States, the construction workers who are building new homes, are those jobs enough to keep our country moving forward?

We got almost 300,000 new jobs in December. That’s incredibly strong. We have had really a good run, and it looks like wages are poised to start to inch up. So, maybe everything’s fine.

But, on the other hand, there is this fear of contagion, that what is happening in China will end up reverberating out across the world, that it is disrupting financial markets. And look what happened to our stock market. This past week was terrible.

So, it’s very unchartered. I mean, people don’t know what to make of all of this, because China has never been so large and so powerful before. And now, all of a sudden, they are having all these problems, and with their currency, with their stock prices. And, really, it’s just unknown whether or not that’s going to derail us in some way or not.

HARI SREENIVASAN: Now, this — the preconditions for our financial crisis were a housing bubble based on sometimes predatory lending, but people were buying things that they couldn’t afford. And that also happened in China.

So, are they seeing the ripple effects of that?

MARILYN GEEWAX: Well, you go — is this all one big giant crisis?

We’re sort of talking about it like two different things, that there was something that happened in the United States in 2007, ‘8, ‘9, and there’s this separate thing happening in China. But, actually, maybe it’s all part of the same big tapestry, where you started out in the United States with a financial crisis that was tied to too much spending on housing.

Too many people borrowed too much money. And then that bubble burst. And that was really bad. It set off a terrible global recession. But then it moved over to Europe, where the problem really was more sovereign debt, where countries had borrowed too much, like Greece. So, you had a big disruption over there that hurt the European economy.

And now you’re moving over to China, where the government spent way too much money on what people call ghost cities. Maybe they built way too much infrastructure, way too many apartment buildings, and now that bubble is bursting.

So, is this part three of the same big, giant crisis that has been going on for years, and it still is going to pull it down with it, or is this really a completely separate issue, and, really, the United States has already gone through its correction and we’re in much better shape now, and China will just have to sort it out on its own?

So, I hate to say that, you know, we just don’t know, but we just don’t know. We will have to see how this plays out. And there is an argument that it’s — it could be very bad for the whole global economy.

But there’s also an argument that China’s stock market is very small and primitive. It’s not really tied in with the rest of the world.

You know, in Europe and the United States, the banks are big and robust and tied together, and they influence each other. China is kind of — you know, it’s a big manufacturing economy, but it’s a small financial power.

HARI SREENIVASAN: All right, Marilyn Geewax, senior business editor for NPR, thanks so much.

MARILYN GEEWAX: Yes. You’re welcome.

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