Slowdown in the Chinese market is driving the world towards a global recession. Almost a year-and-a-half ago, when oil and other commodity prices started sliding, it was announced that the global economy was heading for a slowdown. Then things started getting worse, particularly in countries that were heavily reliant on commodities revenue. Brazil remains a prime example of all such economies. And then came the sharp falls in the Chinese stock market whereas, at the time of writing of this piece, all the gains of 2015 have been wiped out. As of January 23, around eight trillion dollars have been wiped off world markets since the start of this year. For some this was a decline that was waiting to happen because of overheating of the global economy due to the stimulus being provided to developed world economies through zero interest rate regimes, leading to the rapid ballooning of balance sheets, both banks and corporates. Most of this free money found itself into the Chinese and emerging markets as lending in the developed world was not successful in generating sufficient economic activity because of inherent structural problems in developed economies and their workforces. Many have raised fears that the rout is a precursor to a global crisis similar to the one witnessed during the Great Depression starting through the US stock market rout of 1929. When the great tumble of oil came to below $ 60/barrel price, many thought it is part of Saudi/Gulf Cooperation Council (GCC) efforts to stall the advances of shale gas and solar technologies, and to settle scores with the cash strapped Iranians. But with time it is becoming evident that the net decline is contributed to not only because of this desperate effort by the Saudis to maintain their market share; the decline in global demand, led by China, is also a major contributor to the decline. As of now, oil stands at $30/barrel. And many a projected price is falling as low as the 20s to mid-10s, with the hope of rebound in pricing being pushed to late 2017 to 2018 by analysts. In 1929, the meltdown of the American stock market led to a global recession and a decade of pain for the American and global economy, which ultimately culminated in World War II. Two decades leading to the Great Depression saw the US rise as the global industrial power, snatching the productivity and economic activity crown away from the British Empire. At the time of the Great Depression, the most dominant currency was the British Pound. And Britain was the dominant global military and naval power, controlling most of the key trading routes across the globe. When the Great Depression ended, the US was the dominant power in the world. The US dollar wiped out the dominance of sterling and the US economy was established as the most dominant economy of the world. The recent rout of the market has been precipitated by the Chinese stock market rout. Two decades prior to this rout, China had claimed the crown of being the industrial and productivity hub of the world, not only from the US but from the entire developed world. These two decades have seen a massive shift of productivity from the developed world, particularly Europe, to China and East Asia. The wealth generated by China and East Asia as well as wealth earned by oil producing nations through the era of astronomically high oil prices has been reinvested into the developed world, particularly dollar denominated assets, similar to how the US was investing its export wealth in the European markets to boost exports and build forex buffers in the first quarter of the last century. This foreign exchange buffer enables China to sustain itself through the worst economic climate for quite a few years. For instance, in the case of China, its foreign exchange liabilities are around one third of its total dollar holdings. So, yes, China will have to cope with economic slowdown and its social and political ramifications, but it has enough buffer to remain solvent and spend on measures to stimulate the local economy. Flashback, after the 1929 crash, Americans invested heavily in infrastructure projects to act as a stimulus to generate economic activity. But this means the Chinese will gradually be depleting their dollar and euro holdings. The same will be the case with the oil producing nations of the GCC. They will burn their foreign exchange holdings to stimulate local economies and transfer cash to the masses to minimise the social and political ramifications of a global slowdown. This scenario can put considerable pressure on the finances of developed economies. If the worst actually happens, it hints at a scary scenario ahead. We need to be mindful of the US-China comparison in the context of the Great Depression and now. More importantly, we need to be mindful that such massive economic jitters lead to global conflicts. Let us hope this time the transition through turbulence does not pass through something as catastrophic as a world war. The author can be reached on twitter at @aalimalik