The conventional economic wisdom is that the ongoing U.S. recovery is so well established by now that it can weather China's slowdown and the emerging market slide that decline has set into motion. Even as word came out last week that Canada, America's largest trading partner, had slipped into recession -- joining a growing list of countries contending with a slowing China -- investors still had faith in fortress America. Few are suggesting the U.S. is also in danger of entering a tailspin.
In a note this week, for example, analysts with BofA Merrill Lynch Global Research warn that emerging markets could "transmit" weakness to developed markets like the U.S. But it predicted that their slowdown "should be contained as stabilizing commodities, depreciating foreign exchange and easy global monetary policy supports growth."
But at least one veteran forecaster dismisses this sanguine view, bluntly predicting that the U.S. will tumble back into recession next year. David Levy, chairman of the independent Jerome Levy Forecasting Center, said analysts need to keep in mind that emerging markets now account for more than 50 percent of global GDP.
''What we will see is that for the first time in modern history, the U.S. economy will be pulled into recession by external forces," he told CBS MoneyWatch.
Levy's publication has had a pretty good track record on predicting downturns. Before the 2008 financial meltdown, Levy forecast that the U.S. housing market was about to implode. Back in 1929, his grandfather, a physicist turned economist, saw the 1929 stock market crash coming.
"Emerging markets are in danger of having a severe recession because they depend heavily on foreign credit," Levy said. He reasons that these markets will find themselves in a squeeze play as wary investors pull out, the price of their exports fails to rebound and they struggle to stay current with their creditors.
So far, the dominant China narrative has been that the Mainland is in the process of pivoting from being the world's factory to an economy geared to its own domestic consumption. "This transition is very difficult," Levy said. "For this to happen, you would have to see a big drop in the Chinese household savings rate, which is now above 40 percent."
Levy warned that investors are underestimating the amount of debt on the balance sheets of local and regional Chinese governments that the central government has already extended to keep people working. "There's still this assumption that these local governments can service this debt, and it is increasingly evident they can't," Levy said.
"There will be a flight to quality with a broad-based asset deflation." Levy said. "And this will be the first time since the World War II that central banks won't have room to cut interest rates."
In April, the International Monetary Fund warned that emerging markets were vulnerable to capital flight if the Federal Reserve were to raise interest rates. Since the Great Recession, corporate debt originating from developing countries has spiked to $1.1 trillion from $411 billion at the end of 2009 as emerging markets loaded up on cheap debt.
In June, World Bank President Jim Yong Kim issued a report warning that a strong U.S. dollar, low commodity prices and a Federal Reserve rate hike would prompt investors to abandon emerging markets. If that happens, it also raises the question of what the impact on the U.S. economy would be.