"On top of that we have seen a decline in global oil prices, which may probably go to the low 20s, leading to more defaults and bankruptcies. And this situation will continue for the rest of this year, which is certainly bad news," Professor Rasmus said.
The global economy is going to be more fragile and that means that we could have significant instability.
"I think it’s either going to come in China or other emerging markets. It’s not going to come like the 2008 crisis in the US or the European Union, it will come from the outside, but the psychological effect of this will affect the world economy as well," he added.
China is desperately trying to stimulate its economy through private investment and consumption, which is a shift from the previous strategy of exports and government investment.
"I think it’s going to be a very hard transition and it could result in a lot of global instability," Jack Rasmus noted.
Especially the problems are going to occur in Latin America whose emerging markets already feel the impact of China slowing its economy, which slows down the demand for manufactured goods produced in Brazil and other Latin American countries.
When asked if any countries would feel better off than others in the long run, Professor Rasmus said that he saw Europe stagnating with no more than one percent annual growth, Japan being in recession and the US growing at just one to two percent.
“Real investment is slowing down, while financial speculation has been in acceleration over the last decade. That’s a problem which they have to reverse somehow. They need to start investing and redirecting money into real investment that would create real jobs, real income,” Jack Rasmus said, but added that he has see no real evidence of this.
He said he did not seeany significant drop in oil prices either “until we start having major defaults and companies start to drop out.”
In such case the oil may go down to 20 dollars a barrel. With this massive oversupply we have now that the global economy slows there will be less demand for it. China keeps slowing and if the rest of the global economy does not come back, there will be even less demand for oil. A lot of the price for oil is driven by speculators who see it as a financial asset, not a commodity, Rasmus emphasized.
“With the situation we now have I don’t see anything to significantly reverse the oil price, at least for the next six months, Jack Rasmus concluded.
