The ripple effect of the Chinese economic slowdown

Harvard University Professor Niall Ferguson on the state of the global markets, economy and the Obama Administration's policy in the Middle East.

Harvard's Ferguson: China's Behind Plunging Oil

By Business Leaders FOXBusiness

When it comes to the state of the global economy and plummeting commodity prices, Harvard University Professor Niall Ferguson says look to China for some answers.

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“China’s global crisis is spilling right through the global economy,” he said during an interview with the FOX Business Network’s Maria Bartiromo.

“It’s not just about the growth number, which in any case we shouldn’t believe -- it’s really much more about capital flight,” noted Ferguson.

He said key issues include massive outflows and pessimism.

“There’s a great wall of money trying to get out of China and that brings with it the risk of a significant depreciation of the Chinese currency. That’s put the frighteners on other emerging markets, there’s a risk of an Asian currency war and of course all commodities including oil have felt the pain,” he said.   

Ferguson also said China’s push to liberalize capital and compete with the U.S. Dollar could cause further deprecation of its currency.  

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“If money wants to get out of China, and you can’t stop because you’re trying to liberalize capital account, the exchange rate is going to slide and they’ve [China] been trying since August to stop that, to slow down the slide by massive intervention. I think at some point that’s going to crack and we are going to see a further depreciation of the Chinese currency. Might not be quite yet, coming up to the Chinese New Year there’s going to be a lull really. But looking ahead to the spring you could see further action there.”

He also weighed in on policy changes in the Middle East the next President of the United States may have to make.

“The next president is going to have to review, probably reverse the policy of the Obama Administration because that policy has been to gamble on a relationship with Iran that I think is ultimately going to be a deep disappointment.”

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