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Harvard’s Rogoff: Next Global Crisis To Originate From China

Harvard Professor Kenneth Rogoff discusses the risks posed by emerging markets and warns that the next global crisis may potentially come from China. He speaks on “Bloomberg Surveillance.” (Source: Bloomberg)

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Harvard’s Rogoff Says Next Global Crisis To Come From China

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Q2 hedge fund letters, conference, scoops etc

Transcript

What do you see as vulnerable in the financial markets at the moment. So we should have foreseen that the financial crisis better some people did but no action was taken. What should we worry about in 2013.

Well sort of the the existential risk out there over financial markets is that very low real inflation adjusted interest rates have been propping up asset prices and prices in every class. We don’t quite know why they went down so far and if they rise that really could cause a lot of pain from Italy to emerging markets with real interest rates this low if they stay this low. It’s not easy to have a systemic financial crisis because you can borrow for so little. But clearly emerging markets are the big vulnerability at the moment.

Do you worry about shadow banking. I don’t actually we don’t really know the extent of shadow banking in China.

China I would include China and worrying about emerging markets if we’re going to have a really big global crisis. It’s going to come out of China. I I don’t hold with those who say this time is different. China will never have a financial crisis. I think they’re going to have a lot of trouble keeping the growth rate up at the rate they need politically without having debt to continue to rise. That’s absolutely a point of honor or ability in the global economy to the point that I remember him for his view this time it’s different.

You talk about the Spanish spin who’s your model. You know he’s walking around trying to say medieval Europe or early modern Europe. I should say and I know this time is different. But what does Ken Rogoff look good in China when you try to observe is to the buildings when you wake up in the morning and you go to three Bloomberg terminals. What do you look at.

Well I think when we try to have indicators of when exactly a financial we do then we can. Are very weak. There are some things the level of debt is very rapid rise and asset prices and trying to sort of tip off everything. However it’s this very centrally planned economy they can quickly absorb everything. You know Government action. Know I think it’s not easy to fall. But on the other hand you know will it eventually have a big slowdown for a couple of years. I don’t think that is hard to call. I think of course it will.

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