Welcome to inside story. Im ray suarez, it seems like a bling of an eye ago in historical terms, the phase, the chinese stock markets. Might have met with a raised eyebrow. It helps to regulate the heart beat for better or worse. Chinas underlining economic health, growing louder and loudser set off the global sell off, a quake taking on a life of its own. Will the world need a single from china in order to stop or slow plunging indexes. Joining me now, the strategy. The search director at the policy institute, for several gays in a row. Gentlemen have woken to the news, sell you have are offs sell offs, and bad news through america. What is happening. It was their fault for being asleep. Nothing would bet past them. Chinas enormous economy has been having trouble. It has pa debt bubble. And is struggling to figure out the route forward. Theres too much investment. People have been worried for a while. Its a manifestation of the problems there. And explaining it to the rest of the world. Lets say everything said is true. There were perceptions of overvalue, what has that to do with semens if and vol, wagon, when you wake up in new york, chicago, why does it change what you are trading . The moves in the u. S. Stock markets in reaction to china seems wildly disproportionate. If the chinese economy is slowing, and lots of indications are that its slowing, it means less room for the exports. Exports to china are big. If exports to china fell half because of the economy slow down, its 60 million, we notice it. Cross statistics, i do think a slowing chinese economy affects u. S. Companies. In the two days, it is disproportionate. The s p down 240 points in the space of a week. What is going on. 70 points stripped. It reflects the role of china in the World Economy and the effect on the u. S. If you look at the raw numbers, it doesnt look like it had that big an effect. We have had a flood of goods and coming into the homes. To me, it reminds me of the early days of the financial chris si. When people like ben bernanke were saying that it is not that important. Its going to burn itself out. We have the largest economy in the world, its the manufacturing hub of the entire world and all of a sudden the machine is showing science of breaking down, and theres fear and uncertainty about what might happen next, and the fact that we have not seen anything like this. Might this be the opportunity, the excuse to blow a bit of the froth off the head there. Money has had few profitable places to go in the United States, except the stock market. And that sort of fed on itself. Maybe a little bit. I will say, you know, a week, two weeks ago, if i looked at the stock market. They looked a little expensive. They didnt look like a bubble. There were sectors that looked like bubbles. Lots of the tech sectors. The overall u. S. Stock markets does not look like a bubble. Anything like the 1990s internet bubble. It was not obvious that this was inevitable, that we had to have a large stock market decline, just to back in line the line profitability. My guess is this will not be as longlasting. I made froth, but not a huge bub. That was bound and caused damage. When regular people buy stock, they think of it as a fractional piece of a company. They own equities of some sort. Why has the overall value, or the perception of the overall value of so Many Companies changed so much. We are buying inflation. What the entire economy is going to do. As we saw in the financial crisis. Expectations of the future can actually shift relatively quickly, and big swings, and what i would do in this situation is that this is a solid little piece. This is a share. Global economy that you have brought. A Global Economy that is partly committed through the u. S. , connected through europe, china. Fren for example, if you go into your home, all the things you buy, think of what would happen if for some reason the supply got off. How would you feel about it. When you think about the stock market. They are shares of company and shares of the Global Economy. Doesnt this advantage, chinas competitors in the United States. It depends what the reaction is. If the slow down in china is basically because of a slow down in demand, basically if firms are pulling back investors, and households consume less, i dont think thats a whole lot to help u. S. Compete doors, that hurts you as competitors, that hurts you as exporters. If they put downward pressure on their own currency, making up demand, boosting export to the rest of the world, that could be a problem, including a further increase in trade. Stock markets are not dropping in isolation. Declines are coming along with big changes in closely watched measures. Oil dropping like a rock. So is copper, nichol. Measures where future industrial activity. Tumbling markets, its inside story. America tonight opens the case. Never thought that he would be killed for that. That started the push for racial justice. That was the first step in the modern civil rights movement. Could new evidence uncover the truth about that gruesome night . I wanted people to hear the true story of till. Youre watching inside story, im ray suarez, its not just shanghai in new york. Stock exchanges is down this germany and around the world. Do real life fundamentals support knocking millions and billions off the evaluation of companies. They are still with me. Lets talk more about the devaluation of chinas currency. That seems like it was an opening act in what we are seeing, what we have now. Was this a move. Immediately that was perceived as having trouble embedded in it. When authorities decided to allow the devaluation of currency, a lot of people took it as a sign that there was bad economic news. And they were trying to boost their x. Has there not been a longterm demand. Its a currency to deflect the val up. Yes, absolutely. They intentionally depress the value. To run trade surpluses. Thats a source of contention. Thats a source of contention. For a couple of years now, theyve been allowing currency. I would argue not enough. It was going in the right direction. A. Over the past couple of weeks, the currency was derailed. A lot tubing it as a sign from bad economic news. By getting demand from abroad. I think the daily life is opaque to a lot of americans. When you do Something Like devalue a currency. I think we should tell people at home. If you are a chinese worker. The fact is the chinese economy is opaque. What is happening is we have a burgeoning middle class. When it deappreciates, imports are more expensive. We are making chinese workers. Thats a problem for the chinese leadership. We have a situation here. China is having a first World Manufacturing sector. Run by a communist government. Do they have the political legitimacy. In the u. S. Went through the recession. Political stresses already wrecked us. Managed to make it through. The question for me is this is a Major Economic crisis in china, does the leadership have the strength to impose a sort of sacrifices on the local government forces. Looking at this became an economic crisis. I look at it as a political crisis, and from that perspective, it may explain why its spreading around the world. China functioning is fine for the Global Economy. Faster, slower. Chinese political crisis is scary news for everyone. The interesting thing about china is if everything happens, they are churning stuff out, making profits. Huge reserves, thats portrayed as a problem. Then when they do badly, thats portrayed as a problem. I wonder if china is a problem. No matter what they do. I dont think so, my sense is it will pass in 1015 years. Humming along at 10 growth rate. Most thought the growth was nothing but good. It was a potential market. Absolutely consumers and the rest of the world getting richer. The one point of contention over the period was that the change rate issue, the fact that china was intentionally buying hundreds of billions in denominated assets. Its paying the workers the profits in salaries. They werent buying what an equif lant worker in prague or berlin or toulouse would be buying, or that same level of productivity. They were making a lot of stuff. Not enjoying the value. The tension that michael alluded to before. That cheap financial currency was good for exports. It helped with the purchasing power. You would think theyd wooen themselves off it. Theyd let the currency retain value, a reduction in trade surpluses, tap domestic sources. That demand would be newly empowering consumers, so i think the best Case Scenario for the United States is china, growing well, its stable, and an Exchange Rate to appreciate that we dont run huge trade deficits. We have 40 seconds for a final comment. Im worried about this. I think the bubble that had grown in china was the single biggest from me in the Global Economy. I would love to see them manage it down to slow growth, i worry. Michael, the chief economic strategist for the policy institute, and josh, research and policy director at the Economic Policy institute. Great to have you both until now, because you are a new consumer, youve been paying attention to smart economic analysis, like you heard, and may be thinking okay, i have that, very interesting. But what am i supposed to do now. We didnt forget you, your chestnuts and how to save them from the fire. Stay with us. Markets tumbling is the inside story. Welcome back to inside story. Im ray suarez. Tonight on the programme tumbling markets. This morning the boss came out of his office at a chicago Securities Trading house and gave employees some advice dont look at your 401k balance. What does the rhythm following declines tell us to do with your own money now. Was not checking your balance good advice. We turn to the dukes of data, sultan of stacks, a website that tries to take the measured road in all the numbers it throws off, and help you make some sense of it all. Ben castleman, was that good advice. It was great advice. More investors would take that and just you know, rip up the 401k information, go out on a barbecue. Read the sports section. Theyd be better off through what happened today. But we have seen huge drops in the market indexes, not only here, but around the world. Why is your own pile of savings reducing in value. You should relax about it and go to a barbecue. It is painful, difficult not to watch the news. I was watching it today. Violating my own advice. First of all, half of americans dont own any stock at all. They are not in the market. Most of that is in 401ks in iras, mutual funds, longterm investments, where they are not going to let it happen for years or decades. This is a market move that doesnt matter. In fact, the worst thing that you could have done is to sell shares. You sell low, and when you want to buy back in, you wait until things look better, but you miss out on the fast majority of increases. What up end up doing is selling low and buying high. Which is the opposite of what anyone would invest. Lets go back to 2007 and 2008. Did americans do what you described. What ended up happening in geften 2008 is millions of south americans watch the market. They did what is natural, they sold. They stayed out of the market until a significant amount of rebound happened. Let me put a number on that. The market bottomed out, late november. If you waited a few weeks until the beginning of 2009, a point in which we are in the middle of economic rights, if you wait a few weeks, you miss out on 30 of all of the gangs since then. And what is unfortunate is that the people that did sell were by and large the smaller middle class investors, lower income people. It was the rich frankly who were sophisticated investors, and who hold on to it. It was the middle class that lost out in the clash. Who made that money. That money was made by hedge funds, big investors, sophisticated investors, who knew enough to stay in the market and ride it out. It is very, very difficult advice to follow, which is why i say you may be better off flipping to the sports section. Here is what is tough about this. We moved to a world where more and more people are asked, expected to manage their own preparation for the later part of their life where they tap on the last part of their savings, they wont get systematic longitudinal education about what to do. Tell us what we are supposed to do, and as we saw with a crisis, a lot of people do it badly. Thats right. We have really failed as a country, we have moved to the system when we were responsible for an investment and havent educated well. When this turmoil is over. The matter of days, weeks or months, its in peoples interests to go and take that back and look at that portfolio and say am i taking the appropriate risks. Am i going to need that money, how much is in stock, how much is in bonds and cash because i know i have access to money. That rebounding and thought is absolutely a good idea. Dont do it in the middle of an emotional money. If it looks like losing money. Im glad you brought up the balancing. I thought it was a tough thing to ask to do when a lot of people in their 50s, early 60s, are close to retirement age, probably are heavily in the market. For everything that they managed to save, was beaten down so badly in the last downturn. They get back into the market because, lets face it, savings bonds are not going to pay much of a return. A past book. Its going pay you hardly anything, the market seems like the only place to be. Absolutely. And its important to keep in perspective the declines you see. The market is up dramatically from the declines of 2008. Its only down Something Like 10 , 8 this year. We have not seen a massive decline of the sort that we saw in 2008. Theres now products out there where you can set a target date fund, and will shift money from stocks to bonds. I think this is an excellent argument for why this 401k based plan is not a system that works for great many americans. What do we do about that. How do we protect ourselves. Im an american of a certain age, im thinking about stopping working some day. Everybody tries to sell at once, because we are part of a demographic bulge. To me its a recipe for plunging values, isnt it. First of all the u. S. Is in a different situation from europe in that regard. In that we do have a large generation of young people who are entering labour force. So you do have people who are now entering the prime of working career, who are openfully putting money into 401ks, so we dont necessarily have that massive draw down from the market that you might expect otherwise, buts then absolutely, it requires thinking about gradually shifting money from stocks to bonds. Making sure you have cash, that you have the money to ride out a downturn like this, and, look, because of the way we have set up the system, we dont have perfect protection. If you were planning on retiring and it turns out its a down period in the market, we dont have a perfect protection from that, and thats a real problem. Ben cas man is the chief Economics Writer for 538. Com. Ill be back in a minute with a final thought on market psychology, savings and make the serenity prayer, stay with us, its inside story. Looking for. At 7 00, a thorough wrapup of the days events. Then at 8 00, John Seigenthaler digs deeper into the stories of the day. And at 9 00, get a global perspective. Weeknights, on al jazeera america. When the do you sheds 2700 points in a month, its a good time to take stock of stock. Days like today they are nostalgic for when the stock market tells you about the economy rather than being the economy. Did your economy making is and sell it to us. If it did, it was likely that it was worth more year after year, and paid a steady dividend. Many would be playing the stock market. And looking on with worry. They send their own south. The end of the defined benefit for millions of mernts made the stack market a big factor. Some of us thrive, some of us dive more than a decade of interest rates, easy home equity, and too maybe people reaching 60 with too little money meant too paradoxical things. At one point the largest generation of wealthy, healthy senior in the history of the planet. And at the same time untold millions wandering and with good reason, going to outlive their money, im ray suarez, thats inside story. Asian stock markets continue to slide following chinas slowdown. Analysts say a global recession is a real possibility. Hello, im Darren Jordan in doha, who is responsible as thousands of refugees arrive in serbia. Syria says it turned off broadcasts along the border with the north. Well hear african refugees that are trying to make it