It Ain't About China

The talking heads mostly seemed to focus on the fall in the Chinese stock market as the reason for the global selloff. That's missing the point.

Over the past quarter century, the debt bubble has ballooned out of control:

Government debt
Corporate debt
Mortgage debt
and more recently...

Speculative debt

That last one, speculative debt, provides demand for all the other types of debt securities and boosts the pool of investment capital for equities and hard assets. It's money created purely to create demand for investments and it has gone wild, especially during the recent hedge fraud and pirate equity romp. Speculative debt chasing yield has helped fuel the bull market in bonds, equities and commodities. Along the way, yields have been compressed far out of line with true risks.

Now that some of those securities have begun crashing under their own weight, they begin forcing margin calls, tightening up demand for all debt and equities.
With the Yen's recent strength, it further pressures the pool of speculative debt.
China gave a massive margin call on Tuesday, calling in another huge chunk of speculative debt.
China's continuing devaluing of the Dollar puts steady pressure against leveraged Dollar/Yen plays.

Will the debt bubble burst violently? Probably not, IMO. The Fed and other central banks can provide a huge infusion of reserve credit if they want to.
However, a lot of security classes are likely to collapse under their own weight, and many others have a major adjustment to undergo before they price risk reasonably.
Meanwhile, there are a lot of overleveraged speculative interests ripe for a reaming. Mr. Market is probably in the process of wiping some of them out right now, and I think the Yen carrry trade will experience some wild swings going forward, taking out the overleveraged on both sides.
Risk aversion may become a theme over time, and with it a substantial bear market would ensue.