The media will by instinct seek out those warning loudest of impending disaster, giving them a platform to make arguments that sound all too plausible, and may indeed be right.

It is a self-reinforcing effect. Pushed far enough, such spasms can bring about the very crisis most feared, almost regardless of economic facts on the ground. These episodes are especially wild in August, when liquidity is thin.

Yet most turn out to be false alarms. Even the 1929 crash itself was essentially a trivial episode. It did not cause the Great Depression.

While not everybody agrees with Milton Friedman and Anna Schwartz, it is hard to dispute the main thrust of their Monetary History that it was ferociously tight policy by the US Federal Reserve from mid-1930 onwards that led to the collapse of the US banking system.

Ideological policy errors - very like the mentality behind European Monetary Union blunders from 2010 to 2012 - turned a common-garden recession into a destructive slump.

I happened to be in Boston in October 1987 when the Dow Jones index fell 22.6 per cent in a single day. It felt as if the world was coming to an end. I remember rushing to Harvard's Widener Library to search for historical meaning. But there was no meaning.

It was banal. Fed tightening in 1987 had set the scene, culminating in two back-to-back rate rises within a week in September to defend the dollar.

Bad trade data and a move by the US Congress to end tax benefits for leveraged buyouts triggered the actual crash. Portfolio insurance and new computer trading models did the rest.

The storm came to nothing. The Fed showered the economy with liquidity. Growth accelerated to 4.4 per cent in the fourth quarter. The boom carried on for another two years.

Many us had the same horrible forebodings in the white heat of the Asian financial crisis in July 1998, when hawkish Fed chief Alan Greenspan testified to Congress that he was far more worried about rising US inflation than anything go in the Far East.

He talked up the dollar and basically said "drop dead" to all those countries buckling under too much dollar debt. Drop dead they did.

Russia's default in August quickly exposed the complex global links. The pre-euro "convergence trade" in European bonds blew up. The US hedge fund Long Term Capital Management was suddenly so far under water that it threatened to set off a financial chain reaction in the US.

The New York Fed stepped in to avert collapse. Mr Greenspan pivoted. Interest rates were slashed three times.

The US economy never missed a beat. Growth reached 5 per cent in the fourth quarter of 1998. The expansion lasted another two years. Nasdaq's dotcom boom went into its parabolic phase.

You can, of course, argue that this Fed rescue was a mistake. Former vice-chairman Alice Rivlin has suggested exactly that.

But as an investor you would have lost a great deal of money betting on recession during those dire August days. As it happened, the S&P touched bottom on August 31 1998, after the roughly same sort of drop we have seen this month.

The question today is whether the latest ructions in China really are a global show-stopper beyond the control of central banks, or just a "mid-cycle correction" that will blow over. This is a very hard call to make.

The US economy is picking up speed. The consumer confidence index of the US Conference Board surged in August to 2007 levels. Housing sales rose 2 per cent in July. The US job openings ratio is the highest since the dotcom boom.

Germany is rock solid. The IFO business climate index rose to 108.3 in August. Markit says the eurozone is "experiencing one of its best periods of economic growth and job creation during the past four years", with the manufacturing and services PMI reaching 54.1.

All this guarantees nothing, of course. Mature cycles typically look good as they are nearing the end. But this feels nothing like the prelude to the Lehman crisis in 2008, when the monetary data was flashing red warnings on both sides of the Atlantic, and US commercial lending was contracting at the fastest rate since records began.

No such monetary implosion is visible now. The growth of eurozone M1 rocketed to 11.8 per cent in June, a level normally associated with overheating.

Credit has at last turned positive after a three-year slump. Quantitative easing is still on full throttle.

In the US, commercial and industrial loans are motoring along at 11.6 per cent, above the historical average. Broad M3 money (the main measure of money supply which includes currency, coins, deposits in checking and savings accounts and other easily accessible accounts) is well-behaved at 5.2 per cent, exactly what you want in a goldilocks economy.

Shot in the arm

As for the commodity slump, it is chiefly caused by a production surge and is therefore a shot in the arm for global growth, or what economists call a "positive supply shock". The oil slump alone is worth roughly $US1.5 trillion ($2.1 trillion) in stimulus for firms and households, but it kicks in with a lag.

The oil states - and US drillers - suffer the immediate damage before the rest of us reap the gains. In the end the effect is asymmetric. It helps global growth more than it hurts because Opec does not cut spending commensurately. It draws down capital reserves.

The European and American economies are at this point like 747 jumbo jets flying smoothly into stiff headwinds at 37,000 feet. Such craft do not normally fall out of the sky just like that.

The great unknown is China. Some of us never believed in the first place that the Communist Party can perform miracles, or that China is necessarily destined for economic hegemony this century.

We have long argued that the post-2009 credit blitz has been unprecedented in any major country in history. Loans have increased from $US9 trillion to $US27 trillion in six years. The extra debt alone is greater than the combined banking systems of the US and Japan, and its potency is dying as the output gained from each yuan of fresh credit drops from 80 per cent to nearer 25 per cent.

We argued - like premier Li Keqiang, our lonely hero in the Politburo - that the country is hurtling straight into the middle income trap unless it ditches Deng Xiaoping's obsolete catch-up model in time, both by weaning itself off investment-led growth and by relinquinshing the Party grip on Chinese society.

We expected trouble. Yet the crumbling credibility of China's leaders this year is disturbing to watch.

They have made serial errors. They sat on their hands as real one-year borrowing costs rocketed to 5 per cent.

They botched the local government reform plan over the winter, precipitating a four-month fiscal crunch (spending fell 19.9 per cent in January) that would bring any country to its knees.

They deliberately stoked a stock mania in Shanghai and Shenzhen, thinking it would reflate the economy by means of equity rather than debt. They then mobilised the state's coercive powers to stop it collapsing, only to fail.

Finally, they abandoned China's dollar peg and switched to a managed float before the economy had pulled out of recession (my term, not theirs), causing much of the world and many of its own citizens to conclude that Beijing is deliberately trying to drive down the yuan. It is this that precipitated the August storm.

It is has the potential to turn dangerous. Nomura says capital flight reached almost $US200 billion in early July. Reports are circulating that it may be much higher.

The central bank (PBOC) is burning through foreign reserves to defend the currency. This is causing a liquidity squeeze and lowering the monetary multiplier, yet the PBOC cannot easily slash rates to support the economy without inviting further outflows. Hence the timid 50 point cut in the reserve requirement ratio on Tuesday.

We are already seeing signs of disguised capital controls. Beijing has invoked anti-terror laws to investigate anybody suspected of smuggling money out of the country. Police raids are under way in Macau, the casino centre used to launder capital flight.

Beijing has lifted the interest rate cap on long-term deposit accounts to try to entice savings to stay within China. These steps may at least slow the exodus of money.

Off to another stop-go cycle?

My own view - with low conviction, as they say in the hedge fund world - is that China will weather this immediate storm, though with difficulty. Fiscal spending is growing at 13 per cent again. There is already enough juice in the pipeline to flatter growth for a few more months. The housing maket is coming back from the dead. Services are growing at a 10 per cent pace.

Another stop-go cycle is picking up. Each time it is weaker, but it is still enough to delay the denouement until next year, and next year is an epoch away in market time.

Li Keqiang said on Wednesday that conditions are "bewildering" but that "the exchange rate will be kept basically stable at an adaptive and equilibrium level". He has many levers at his disposal but he is not omnipotent, and his own political future is suddenly in doubt.

Watch the offshore exchange rate for the renminbi. If that keeps spiralling further away from the inland rate, we will know that matters are out of hand, and then we really will have a global currency crisis. We are not there yet.

It has been a frightening couple of months. In the end you have to make a judgment call on whether this tangle of cross-currents in the world economy really is the start of another wrenching global crisis, or just a tremor. This time I refuse to join the pessimists. 

The Telegraph, London