This isn't a repeat of the GFC. The world's banking system is not frozen.
This is not a full meltdown of the global financial system. So that is the good.
American stocks, and New Zealand stocks for that matter, were looking overvalued after a long bull run. They were due to correct. Events in China have provided the trigger. That's making the correction process more unsettling than we'd hope. It almost always is.
There's a good chance the sell off will be overdone, so anyone in the market for the long term gains - including KiwiSavers - should be looking through this.
Investor sentiment is a powerful thing and right now fear is back in the markets.
The China situation is more complicated and potentially a lot more troubling for the New Zealand economy.
Chinese equity markets are not the Chinese economy. Unlike Western economies where listed companies represent a large proportion of national GDP, China's economy is still overwhelmingly dominated by the huge state owned enterprises.
In theory the rise and fall of equity markets should be a side show.
Unfortunately things are not quite that simple.
Because the Chinese markets have attracted millions of middle class "mum and dad" investors there is now a serious risk to consumer confidence in China.
That's bad news because middle class confidence is a big driver of Chinese growth and demand for the kind of high value products Western countries are selling to China.
Like dairy products. Gulp.
Underpinning all this turmoil is the unavoidable reality that Chinese economic growth is slowing. It is slowing faster than hoped -- although there is no shortage of commentators who have predicted it would.
The US economy is also stubbornly taking longer than hoped to get back into top gear.
The really bad news!
The combination of these factors has also prompted a big sell off on commodity markets which were already at historically low levels.
Of all the financial chaos out there right now, this may be the worst part of it all for us.
So oil prices are falling again. And iron ore -- bad news for Australia. And, as of this morning, dairy futures -- bad news for New Zealand.
The real issue for ordinary New Zealanders is that these events could seriously exacerbate some already dark clouds around the economy.
Could this push us into recession?
Maybe. But let's not forget we're coming off a strong run and growth is still running at about 2.5 per cent. The Reserve Bank still has started cutting rates but still has plenty of scope to cut further. Let's not forget that the dollar is falling further adding to the value of returns our exporters earn.
Finally let's not underestimate the Chinese Government's ability to pull a rabbit out of the hat.
When the Western system went to the wall in 2007 the US Government showed just how much fire power it had to intervene by bailing out banks and printing money.
China has trillions in cash reserves and regulatory powers Western leaders can only dream of.
It is likely we'll see an action plan of shock and awe coming out of Beijing in the coming days. Let's hope so and let's hope it works because the stakes are high.
For Australia and New Zealand, with our reliance on China, the stakes may be even higher than they were during the GFC last decade.
