Chief economist at Morgan Stanley predicting "economic armagedon"


Stephen Roach, an economist at Morgan Stanley with a reputation for being bearish, has related in private that America has only about a 10 percent chance of avoiding serious economic problems. He sees a 30 percent chance of an imminent slump and a 60 percent chance that "we'll muddle through for a while and delay the eventual armageddon."

The reasons for Roach's diagnosis appear eminently sensible. He notes that to finance the current account deficit, America has to import $2.6 billion in cash every working day. That comes to about 80 percent of the entire world's net savings. Does anyone with half a brain believe that this sort of thing can be sustained much longer? Indeed, it boggles the mind to think how we've managed to keep it up for so long. Where does the $2.6 billion come from? Here we begin to understand that there are foul financial machinations afoot. The amount of credit that must be created to sustain the current account deficit would lead to runaway inflation if any other nation in the world tried it. But because of the strength of the dollar, we've managed to get away with it.

But wait a minute! The dollar is falling! Just today , the dollar slid to a record low against the euro. The props holding the economy up are dissolving right in front of our eyes. It may not be long now before the whole thing comes crashing down.

Posted: Fri - December 3, 2004 at 06:20 PM          

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