Think about the Chinese economy and stock market as basically being a fun-house mirror view of its American counterparts.
Debt-driven economy? Check. Central bank and government stimulus aimed at goosing the stock market? Check. Highly leverage-driven growth in that stock market? Check.
True, China and the U.S. have key differences. China's gross domestic product gains have dwarfed what's happened in America. Equity values represent a much higher proportion of U.S. wealth. And, of course, domestic stocks are not in free fall like they are in China.
Yet, consider this kernel of China analysis recently published by Citigroup's economic team:
While China's data suggests growth stabilization, policymakers' demonstrated aversion to volatility across many assets could propagate moral hazard, delay price adjustment, lead to prolonged resource misallocation and build-up of future risks.
Substitute "U.S." for "China" in that sentence and the analysis still applies pretty well.
In fact, when critiquing the Federal Reserve's response to the financial crisis in 2008, many economists cite those very potential pitfalls: Asset misallocation due to focus on liquidity and stock market gains; the moral hazard that comes from an overreliance on policy stimulus; and problems with price discovery due to the effects unnaturally low interest rates have had on the post-crisis corporate earnings cycle.