China economic meltdown spilling over to global markets: Analyst
Press TV has conducted an interview with Jack Rasmus, professor of political economy in San Francisco, to discuss the impact of China’s economic meltdown on global markets.
What follows is a rough transcription of the interview.
Press TV: Do you think the current developments are temporary or are we seeing something a lot more major and perhaps a little bit more permanent than what many may be predicting?
Rasmus: Certainly not temporary. And it is a major event, I believe, because what we are seeing in China in stock market and its retreat - really there was a bubble there, 120 percent rise in one year, that is a bubble - and it is unwinding now, and there is no way you can stop the unwinding. China can slow it down and make it more orderly perhaps, but it cannot stop it, and it is spilling over clearly to the rest of the markets around the world.
We saw today the US rally quickly, quickly disappeared and stocks written negative again. That is a kind of an ominous sign and it is having real effects everywhere as well. We see capital flight now out of China accelerating, emerging markets and it is going to safe havens like the euro driving up the euro, which means the recovery in Europe is possibly going to slow down now. Big repercussions everywhere both in financial markets and, with a lag, we are going to see in real markets, in real economies as well.
Press TV: And what about the effect? We know that it is having a major effect on China but looking at the effect that it has in other markets since everything is so interrelated, we saw that Dow Jones really not responding very well. How can this possibly affect the economic situation in the US?
Rasmus: Well we are going to see a continued decline here maybe, not precipitously, but the stock markets are going to slow and decline in the US, there is no doubt about that. That has a wealth effect, as we say. Those who had enjoyed strong stock price appreciation now with the decline in the stock values, there is going to be less real consumption as a result. It is probably going to freeze up some investment as well. A lot of companies are losing money with the decline and stock prices and investors are going to move to the sideline. Companies are going to hold up their investment plans till they see little more certainty as to what is going to happen. So it will have an effect on consumption and investment in the US and we will see how much over the next several weeks and months.
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