Posted on 11/23/2004 5:07:35 PM PST by tmp02
Stephen Roach, the chief economist at investment banking giant Morgan Stanley, has a public reputation for being bearish.
But you should hear what he's saying in private.
Roach met select groups of fund managers downtown last week, including a group at Fidelity.
His prediction: America has no better than a 10 percent chance of avoiding economic ``armageddon.''
Press were not allowed into the meetings. But the Herald has obtained a copy of Roach's presentation. A stunned source who was at one meeting said, ``it struck me how extreme he was - much more, it seemed to me, than in public.''
Roach sees a 30 percent chance of a slump soon and a 60 percent chance that ``we'll muddle through for a while and delay the eventual armageddon.''
The chance we'll get through OK: one in 10. Maybe.
In a nutshell, Roach's argument is that America's record trade deficit means the dollar will keep falling. To keep foreigners buying T-bills and prevent a resulting rise in inflation, Federal Reserve Chairman Alan Greenspan will be forced to raise interest rates further and faster than he wants.
The result: U.S. consumers, who are in debt up to their eyeballs, will get pounded.
Less a case of ``Armageddon,'' maybe, than of a ``Perfect Storm.''
Roach marshalled alarming facts to support his argument.
To finance its current account deficit with the rest of the world, he said, America has to import $2.6 billion in cash. Every working day.
That is an amazing 80 percent of the entire world's net savings.
Sustainable? Hardly.
Meanwhile, he notes that household debt is at record levels.
Twenty years ago the total debt of U.S. households was equal to half the size of the economy.
Today the figure is 85 percent.
Nearly half of new mortgage borrowing is at flexible interest rates, leaving borrowers much more vulnerable to rate hikes.
Americans are already spending a record share of disposable income paying their interest bills. And interest rates haven't even risen much yet.
You don't have to ask a Wall Street economist to know this, of course. Watch people wielding their credit cards this Christmas.
Roach's analysis isn't entirely new. But recent events give it extra force.
The dollar is hitting fresh lows against currencies from the yen to the euro.
Its parachute failed to open over the weekend, when a meeting of the world's top finance ministers produced no promise of concerted intervention.
It has farther to fall, especially against Asian currencies, analysts agree.
The Fed chairman was drawn to warn on the dollar, and interest rates, on Friday.
Roach could not be reached for comment yesterday. A source who heard the presentation concluded that a ``spectacular wave of bankruptcies'' is possible.
Smart people downtown agree with much of the analysis. It is undeniable that America is living in a ``debt bubble'' of record proportions.
But they argue there may be an alternative scenario to Roach's. Greenspan might instead deliberately allow the dollar to slump and inflation to rise, whittling away at the value of today's consumer debts in real terms.
Inflation of 7 percent a year halves ``real'' values in a decade.
It may be the only way out of the trap.
Higher interest rates, or higher inflation: Either way, the biggest losers will be long-term lenders at fixed interest rates.
You wouldn't want to hold 30-year Treasuries, which today yield just 4.83 percent.
Well, that's that then, isn't it? Ta-ta. Mr. Nowhere Man from (Old) New England. No pufters 'round here then, amen. Off ya go, then!
He's not brilliant, but he's a smart guy. Half of being a smart guy is recognizing the problem. However, predicting how that problem will manifest itself is the work of a brilliant guy...the best you can do with any of these guru types is listen to the set of problems/forces they lay out and then make up your own mind. Never bet on someone else being brilliant.
The result: U.S. consumers, who are in debt up to their eyeballs, will get pounded.
So, since I have no debt that means I'll prosper?
::: yawn :::
if a man lives long enough, he gets to see the same thing over and over.
Oh no! Not the Icescapades!
Hate to see the pinstripe bandits on Wall St go thru hard times. But again feel sorry for Joe sixpack who has 10 or so credit cards on him at all times. He's going down too.
RE: The result: U.S. consumers, who are in debt up to their eyeballs, will get pounded.
Not to be sadistic, but I actually welcome inflation. I think what we need is a slightly inflationary climate. My only debt is a small mortgage at a very low fixed rate, so inflation would shrink the remaining principle in adjusted terms. The line of work I am in is such that wages would rise with inflation since what we sell would also rise with it.
An educated guesser?
Something in a name?
Not so quick there.
You don't have to be a Wall Street guru to connect the dots.
The U.S. is spending a rapidly increasing percent of its budget on social welfare--now close to an astounding 70% of its total expenses--and its percent spent on national defense is actually less than in 1993.
With foreign military dangers increasing and the percent of total expenses spent on military/defense decreasing, we are in grave danger.
The ever increasing percent of total expenses on social programs has not reached full throttle since the boomers are just now starting to enter retirement.
Add to that the enormous cost of social welfare for 15 million illegal aliens and their soon to be 60 million offspring and financial armageddon will close in fast.
Should Iran or North Korea create an "incident" where a crash program to build a ABM system is initiated may add another trillion dollars to the debt.
Either the social welfare juggernaut has to be reversed or America will collapse from the spending cancer.
Face this fact.........the social welfare juggernaut will NOT be reversed until America collpases and becomes a third world nation under the control of a foreign power.
That's why they call economics "the dismal science." And why Truman (or was it Roosevelt?) want a one armed economist, because they were always saying, "....but on the other hand."
Crap. Just like all the rest of these nutty predictions we have heard for the past 30 years. Yeah, sell your stocks. I'll be buying when the prices go down.
Stupid.
Razor Fish will return, I swear!
The good jobs that are remaining will consistently pay lower because a lot of the workers who used to be in exported jobs have educated themselves and saturated the labor market with higher educated and workers, driving down the wages for higher end positions.
I acknowledge the fact that I could be very wrong though.....as I said I'm not an economist. This is just the way I see it from my little corner of the world.
Stephen Roach was a $2000 donor to the Kerry campaign. He is trying his hardest to make his loser RAT dream of American failing with Bush in office come true. His political agenda makes no economic sense.
It sounds as reasonable as anything else I've read and I read a lot of this stuff...
maybe. we've already seen the (short lived) renaissance of bell bottoms, wide ties...sideburns...
There have always been bearded men on sidewalks carrying placards with their warning, "the sky is falling!!!" I've listened to bears grumbling about these scenarios throughout my 40 years on the street. In the final analysis, I thank God for bears who persist in preaching doom and gloom. They keep just enough greater fools on the sidelines, thus preventing their prophecy.
No! No! It's the end of the world! Run for your lives! Build bunkers! Load the weapons!
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.