Bubbling world economy

Dean Baker looks at the bubble aspects of the current world economic situation (China stock panic could pop housing bubbles Aljazeera America 08/31/2015):

While predictions of a collapse of the Chinese economy will almost certainly be proven wrong, it is likely to be on a slower growth path going forward. This is a major factor in the falloff in commodity prices, most notably that of oil, which has dropped below $40 a barrel. This drop in oil prices will exacerbate the economic troubles of major oil exporters like Russia and Venezuela.

The drop in commodity prices could have further-reaching effects. The economies of Canada and Australia have been driven to an important extent by booming commodity exports. These economies recovered much more rapidly from the 2008 crash than most other wealthy countries, in part because house prices in both countries quickly returned to bubble levels.

Comparing housing prices in the US to those in Canada and Australia, he notes, "Market fundamentals don’t explain this gap; it’s hard to believe that people in Canada and Australia value housing so much that they are willing to pay a much larger share of their income for it."

He also reminds of the drastic fall in oil prices, which have "dropped below $40 a barrel. This drop in oil prices will exacerbate the economic troubles of major oil exporters like Russia and Venezuela."

The hits to those two petrostates temporarily reduces some of the foreign policy options of those two countries.

Bryce Covert gives us a timely reminder that the sudden drop in stock markets last week don't directly affect Social Security. And it certainly speaks against the Republicans' perennial idea to "privatize" (i.e., abolish) Social Security. (Bryce Covert, If Social Security Had Been In Private Accounts The Stock Market Drop Could Have Been A Disaster ThinkProgress 08/24/2015)