Game of Trades: A Major Housing Collapse in China is Dragging the Global Economy Into the Worst Downturn Since 2008

The economy is holding up strong this year. While investors were briefly worried about smaller banks in the U.S. banking system, time is allowing the fear to subside.

However, while the U.S. is a big part of the global economy, it’s not the only place that can cause a global recession. And China’s slowing economy may pose a larger danger for investors today. Much like the U.S. economy 15 years ago, the culprit may be in housing.

The past 10 years have shown a strong correlation between China’s credit markets and global market performance. When credit has tightened, so have global markets. When credit has expanded, so have markets.

Currently, real estate is tightening in China. The housing market is dropping sharply, even as the government has stepped in to try and stop the decline with easier monetary policy.

That drop, as China’s economy has reopened this year, is the opposite of what many have expected.

As a result, there’s been less global demand for commodities. That’s partly why OPEC has cut production twice so far this year, as oil demand has dropped. And other commodities such as copper may also trade lower in the months ahead.

In a worst-case scenario, global markets could further decline. And the world could slide into a recession if China’s demand drops substantially.

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