THE TAIL OF THE DRAGON: THE NIGHTMARE RISING IN THE EAST

THE TAIL OF THE DRAGON: THE NIGHTMARE RISING IN THE EAST

Being the world's second-largest economy, China's slowing growth is steadily becoming a problem in the country, there are increasing concerns over the spread like a virus that affect the global economy. While the devaluation and the successive weak economic data of the said country are scaring the investors, the causes and the results of the more visible depression nightmare are given below.

The current phase is the third phase of the global economic crisis of 2008. After the bankruptcy of Lehman Brothers in 2008, the first phase of the crisis began. In this process, the United States has intervened rapidly to the crisis and through support packages, she has first recovered, then socialized the debt of the financial sector. However, because of the integrated nature of the global financial system, the crisis was not limited to the United States. The second stage of the crisis was experienced by the spread to Europe. The bankruptcy stage passed from the companies to the states. While Europe still did not emerge from the crisis, we have passed to the third stage: the deepening of the crisis. And this third stage was completed by the spreading across the world. In the production bases such as China, slowdown has become more pronounced.

In the coming period, the US Federal Reserve (Fed) and other major central banks may deepen the crisis they had postponed further with the expansion of credit, imposed since 2008. Grounding of the global economy, which had been kept afloat by credit expansion, may arise. Particularly the Fed, the major central banks do not have the primary weapon they can use this time to avoid the incoming wave. Productive investment will be destroyed. This recession could mean further spreading. The process will not be limited to one region, like the 1994 Asian crisis. Asian markets after the 1994 crisis were included in the global financial architecture. Therefore, a problem arising in one part of the system can quickly spread to the other parts.

Fear of a global slowdown triggered by China, which already causes a drop in commodity prices, has pulled the world financial markets to the bottom. From Asia to Europe, from the US to the emerging countries, the stock markets across the world witnessed record losses. Oil prices fell more than 4 percent.

While the stock market in China has recorded a loss close to 9 percent, it was the sharpest decline since the financial crisis in 2007.The indexes that were positive by 50 percent in June compared to the beginning of the year, have retreated to the Christmas time levels.

Asian stock markets, on the concern of the ongoing decline of China's stock market in three months is going to be out of control, went down to the bottom of last three years. Losses in the European stock markets exceeded 6 percent during the day, thus experiencing the most drastic decline since the most severe period of the global financial crisis of October 2008.

The problems in China are not only limited to the stock market; the country has accumulated a lot of serious problems. Previous growth rates in China could not be sustained. With the devaluation and the gradual deterioration of the data, the market began to see it clearly. Even if the Bank of China takes the necessary steps, it will not change this fact. China will replace the preceding 10 years of growth model. While replacing it, she will decrease her economic growth rate to 3 or 4 per cent. A choice can be made between a sudden decline and a decline spread over time but she does not have an alternative as to not decline. But if they lose the control of Yuan's adjustment, it will be a very dangerous phenomenon for the world: China will begin exporting deflation. The producer inflation rate is already very negative since 42-44 months. This could bring a harder wave of deflation. The Fed will increase interest rates in September. America will enter a crisis without increasing interest rates.  There is already now a crisis in emerging markets. Global trade is expected to have the lowest growth of the last 10 years. There is an economic crisis coming from emerging markets. US can protect herself for a year or a year and a half but not more...