Dan Rather

For those who may be in doubt or denial about the general interconnectedness of theworld's economies - and the specific dependence of our U.S. economy on global economic health - last week should have provided an eye-opener. A one-day slide in the Dow Jones industrial average of 416 points has a way of getting people's attention, whether or not those losses ultimately prove to be short-lived.

News on early Tuesday morning that stocks had tumbled in Asia made it seem all but inevitable that it would be a down day on Wall Street. That much could be predicted. But given the magnitude of the drop here and the possible reasons for the fall abroad, this case bears closer examination.

One possible catalyst for China's biggest market plunge in a decade was the rumour that the Chinese government was considering new trading regulations. Let's note that one and come back to it later.

Another thing that may have given the Shanghai, Shenzhen and Hong Kong stock exchanges a shove on Tuesday was a speech Alan Greenspan gave in Hong Kong on Monday. In his remarks, the former chairman of the U.S. Federal Reserve ventured, "It is possible we can get a recession in the latter months of 2007."

Leaving aside for a moment the question of whether this comment - even though quickly qualified - is an appropriate one for someone in Greenspan's position to make, it seems to have had real and immediate effects, especially when coupled with news of January's sharp drop in durable goods orders. Why did the prospect of a U.S. economy in recession so roil the Chinese equities markets? Because American consumers are the biggest customers for the products being made by those publicly traded Chinese companies.

Reciprocal effect

And with such heavy Chinese investment in America - especially in the realms of currency and U.S. Treasury bonds (read: our government debt - used to fund, among other things, the Iraq War), though it is not limited to these areas - there is bound to be a reciprocal effect here when major markets there tank. Perhaps the most interesting place you could see this effect take holdwas in commodities prices, which took a hit along with stocks on exchanges here in the U.S. and in London. The reason? You guessed it: concerns that the Chinese economy might be slowing down.

So let's recap: Chinese markets drop on fears that the U.S. economy may fall into recession, which causes U.S. markets to drop on fears that this is a sign that the super-hot Chinese economy is finally cooling down. If you're thinking that this is a remarkably circular system that's especially susceptible to self-fulfilling prophesies, you're probably right.

But there's more to it than that. Let's get back to that first possible catalyst for the sell-off in China: rumours of new market regulations.

That such rumours would have this effect is worth noting and underscoring. China's equities markets have tripled in value during the past 18 months, and, despite the very real aspects of China's economic growth, stocks are widely considered to be overvalued. There is talk among financial experts of a speculative bubble mentality at work there, and weeks such as this one show that this bubble may be prone to popping.

What might happen to our economy and those of other countries if this bubble does burst? Tuesday provided one possible answer. It also provided occasion for sober thought about how much our lives and well-being are tied to the government, companies, investors and people of a strategic competitor thousands of miles away.