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Economic `Armageddon' predicted
http://business.bostonherald.com/businessNews/view.bg?articleid=55356 ^ | 11/23/2004 | Brett Arends

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.


TOPICS: Business/Economy
KEYWORDS: armageddon; bearishness; drugs; economy; hallucinations; loser; lunacy; mentalbreakdown; morganstanley; paranoia; prophecy; rehabilitation
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1 posted on 11/23/2004 5:07:35 PM PST by tmp02
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To: tmp02
His prediction: America has no better than a 10 percent chance of avoiding economic ``armageddon.''

I'll save this one in my collection of Dumbassed Predictions That Never Came True.

These predictions are invariably made by Democrats and other Leftists and terrorist sympathizers.

2 posted on 11/23/2004 5:09:50 PM PST by Prime Choice (I like Democrats, too. Let's exchange recipes.)
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To: tmp02

The DU guys had this article posted earlier today and as predictable, they were giddy about this guys prognostics.


3 posted on 11/23/2004 5:10:27 PM PST by GWB00
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To: tmp02

You wouldn't be trolling would ya?


4 posted on 11/23/2004 5:12:21 PM PST by Chuck54 (Four more years of lower taxes and killing terrorists. I love it.)
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To: Chuck54
You wouldn't be trolling would ya?

Not unless he's a sleeper troll (which I doubt). The guy's been here for over a year.

5 posted on 11/23/2004 5:13:57 PM PST by Prime Choice (I like Democrats, too. Let's exchange recipes.)
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To: tmp02
Roach predicted "armageddon" on January 1, 2000 when millions of mainframes, worldwide, would bring the world to its knees.

Roach has never been right, about anything. He even missed the Clinton recession.

6 posted on 11/23/2004 5:14:08 PM PST by sinkspur ("It is a great day to be alive. I appreciate your gratitude." God Himself.)
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To: GWB00

This is very bad stuff. Nothing to be "giddy" about. And he's only repeating what others, like Paul Volcker(SP?)have been saying for a year or more.


7 posted on 11/23/2004 5:14:36 PM PST by durasell (Friends are so alarming, My lover's never charming...)
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To: tmp02
Me thinks Roach is a....


8 posted on 11/23/2004 5:14:49 PM PST by Dallas59 ("A weak peace is worse than war" - Tacitcus)
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To: GWB00
The Dummies' desire for the USA to fall is palpable. And just so sad.
9 posted on 11/23/2004 5:15:18 PM PST by Kornev
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To: Prime Choice

I fully agree, this one goes in with the ice age tree huggers were predicting back in the 70's.


10 posted on 11/23/2004 5:15:20 PM PST by Dozer3
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To: Prime Choice

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.


11 posted on 11/23/2004 5:15:55 PM PST by Rightone
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To: Kornev

Many at the bottom or near the bottom feel that a crash will level the playing field. It won't. What it will do is grind them to dust.


12 posted on 11/23/2004 5:17:24 PM PST by durasell (Friends are so alarming, My lover's never charming...)
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To: tmp02
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?

13 posted on 11/23/2004 5:18:09 PM PST by Thermalseeker
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To: sinkspur

He was right about the dot com bust and he was right about the gutting of America's smoke stake industries, when he switched position on the topic back in the early to mid-90s.


14 posted on 11/23/2004 5:20:12 PM PST by durasell (Friends are so alarming, My lover's never charming...)
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To: tmp02

This article borders on hysteria. Nearly every sentence is saturated with excessive anxiety.


15 posted on 11/23/2004 5:22:14 PM PST by Starboard
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To: sinkspur

"Armageddon" is a relative word. For some "armageddon" will be the loss of their savings. For others it means additional opportunity. The free market always picks and chooses its losers.


16 posted on 11/23/2004 5:22:14 PM PST by meenie
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To: tmp02
Opinions are like a-holes in that everyone has one. Roach is a perma-bear although I do think some of his points are very good. John Mauldin just wrote a great book called Bull's Eye Investing that covers everything from our domestic economy to the world economy as well, and does a great job of helping investors protect their capital in the coming very shaky years. He's not forecasting ``armageddon'' although he thinks we will see a muddle through economy for a long time because of some of the same things that Roach worries about.
17 posted on 11/23/2004 5:22:33 PM PST by conservativecorner
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To: Chuck54

Nyaa, these "Doom is Just Around the Corner" threads have been a staple on FR for as long as I've been here.

Here's one thing that has decreased in price: You can get a copy of Bankruptcy 1995: The Coming Collapse of America and How to Stop It for a mere 49 cents.

18 posted on 11/23/2004 5:23:03 PM PST by Nick Danger (Want some wood?)
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To: durasell
I take back my previous post...

Jan 2000:

Stephen Roach:

The forces behind the slower growth -- higher energy prices, a slowdown in technology spending, tighter credit, and the negative effects of declining stock prices --

certainly aren't going away. Morgan Stanley Dean Witter Chief Economist Stephen Roach argues that with this mix in place, all it would take is one of three "shocks" to shove the U.S. into recession. These include a full-scale energy crisis, brought on by a very cold winter or a war in the Middle East; a weakening dollar, as foreign funds pull out of the U.S.; or a stock-market crash that scares consumers into curbing spending.

Unfortunately, none of these shock scenarios seem far-fetched right now. Roach gives a 40% probability of recession in the first half of 2001. "To me, that is tantamount to maximum alert," he writes.
19 posted on 11/23/2004 5:23:11 PM PST by Dallas59 ("A weak peace is worse than war" - Tacitcus)
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To: tmp02

To give Stephen Roach credit, he's not saying this for political reasons. As the lead-in suggests, he's bearish.

The current account deficit really is horrific, and puts us at a disadvantage with countries like China, which certainly would love to damage the United States.

Of course he may be completely wrong, but his predictions are based on economics, not politics. There are plenty of political minded, Bush-bashing economists, but I don't think he's one of them.


20 posted on 11/23/2004 5:24:13 PM PST by Cicero (Nil illegitemus carborundum est)
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To: sinkspur
Roach has never been right, about anything. He even missed the Clinton recession.

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!

21 posted on 11/23/2004 5:24:52 PM PST by SlightOfTongue
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To: Dallas59

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.


22 posted on 11/23/2004 5:27:13 PM PST by durasell (Friends are so alarming, My lover's never charming...)
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To: Thermalseeker

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?




Not if your savings accounts or other assets are denominated in dollars. Short term, dollar may bounce up because of all the recent negative hype (nothing new to anyone one with eyes open the past few years), but longer term, "watch out below".


23 posted on 11/23/2004 5:27:57 PM PST by Blue_Ridge_Mtn_Geek
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To: tmp02

::: yawn :::


24 posted on 11/23/2004 5:28:16 PM PST by BunnySlippers (George W. Bush is our president ... Get over it!)
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To: tmp02
It's doomsday. Again.
25 posted on 11/23/2004 5:29:25 PM PST by the invisib1e hand (if a man lives long enough, he gets to see the same thing over and over.)
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To: the invisib1e hand

if a man lives long enough, he gets to see the same thing over and over.


Oh no! Not the Icescapades!


26 posted on 11/23/2004 5:30:44 PM PST by durasell (Friends are so alarming, My lover's never charming...)
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To: Nick Danger

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.


27 posted on 11/23/2004 5:30:50 PM PST by eternity (From here to...)
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To: tmp02

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.


28 posted on 11/23/2004 5:30:56 PM PST by GOP_1900AD (Stomping on "PC," destroying the Left, and smoking out faux "conservatives" - Take Back The GOP!)
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To: durasell

An educated guesser?


29 posted on 11/23/2004 5:31:13 PM PST by Dallas59 ("A weak peace is worse than war" - Tacitcus)
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To: tmp02
Roach

Something in a name?

30 posted on 11/23/2004 5:31:54 PM PST by maine-iac7 ( Pray without doubt..."Ask and you SHALL receive")
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To: Prime Choice
I'll save this one in my collection of Dumbassed Predictions That Never Came True.

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.

31 posted on 11/23/2004 5:32:37 PM PST by Dont_Tread_On_Me_888 (John Kerry--three fake Purple Hearts. George Bush--one real heart of gold.)
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To: Dallas59

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."


32 posted on 11/23/2004 5:32:45 PM PST by durasell (Friends are so alarming, My lover's never charming...)
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To: Rightone

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.



People who sold their tech stocks in spring 2000 were not stupid. So, did you start buying then? Or maybe in 2001?


33 posted on 11/23/2004 5:33:11 PM PST by Blue_Ridge_Mtn_Geek
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To: Blue_Ridge_Mtn_Geek

Razor Fish will return, I swear!


34 posted on 11/23/2004 5:35:39 PM PST by durasell (Friends are so alarming, My lover's never charming...)
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To: durasell
I'm not an economist, and won't pretend to be. I think our economy is good but is very thin. A lot of the good solid jobs that used to be in our country no longer exist. Right now allot of jobs are at Wal-Mart and restaurants..low paying service type jobs.

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.

35 posted on 11/23/2004 5:35:49 PM PST by KoRn
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To: tmp02

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.


36 posted on 11/23/2004 5:36:34 PM PST by Modok
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To: KoRn

It sounds as reasonable as anything else I've read and I read a lot of this stuff...


37 posted on 11/23/2004 5:37:54 PM PST by durasell (Friends are so alarming, My lover's never charming...)
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To: durasell
Ice Capades

maybe. we've already seen the (short lived) renaissance of bell bottoms, wide ties...sideburns...

38 posted on 11/23/2004 5:38:02 PM PST by the invisib1e hand (if a man lives long enough, he gets to see the same thing over and over.)
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To: the invisib1e hand

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.


39 posted on 11/23/2004 5:38:47 PM PST by Broker (fill or kill)
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To: the invisib1e hand

No! No! It's the end of the world! Run for your lives! Build bunkers! Load the weapons!


40 posted on 11/23/2004 5:39:10 PM PST by durasell (Friends are so alarming, My lover's never charming...)
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To: durasell

Doesn't saying doom and gloom stuff have the same effect as the real thing?


41 posted on 11/23/2004 5:39:13 PM PST by Dallas59 ("A weak peace is worse than war" - Tacitcus)
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To: Chuck54

You've been here less than two months and accuse another poster of trolling? Not a good idea.


42 posted on 11/23/2004 5:39:18 PM PST by Jean S
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To: tmp02
"spectacular wave of bankruptcies"

I believe this to be totally true. With the ARMs and other flexible rat equity loans.... I expect to see a lot more high dollar cars in used car lots this coming summer. The following summer I expect to see a big opportunity for foreclosure auctions. Just a gut instinct.

When I see fat toothless drunk guy from the Central Valley cruising a 40,000 dollar rig with a whole group of quads in a trailer with fat toothless drunk wife and butterball candy chopin' kids coming to Pismo.... I know somethin' ain't in correct order in this world... and a correction is in the horizon.

43 posted on 11/23/2004 5:41:20 PM PST by Porterville (IT'S GOOD TO BE REPUBLICAN- ASK ME HOW)
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To: Dallas59

You mean, can a guy like Roach move markets? I don't know. But if you get a bunch of guys like him, they probably can -- at least temporarily. On the other hand, trying to paint a rosey picture can't keep a market or economy from crashing. That's why economics is fascinating, because it's a complex system with tens of thousands of variables.


44 posted on 11/23/2004 5:42:11 PM PST by durasell (Friends are so alarming, My lover's never charming...)
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45 posted on 11/23/2004 5:42:28 PM PST by Porterville (It's time to get mine)
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To: Blue_Ridge_Mtn_Geek

I remember seeing one of those post doomsday B movies in the late 1970's. The only thing worth value in a post doomsday world is guns, bullets, cans of beans, and stockpile of quality booze and good quality Playboy/Penthouse magazines that can be sold for a good price to the warlord soldiers roaming the collapsed society.


46 posted on 11/23/2004 5:42:48 PM PST by Fee (Great powers never let minor allies dictate who, where and when they must fight.)
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To: Fee

A Boy and His Dog? From a Harlen Ellison short story?


47 posted on 11/23/2004 5:43:51 PM PST by durasell (Friends are so alarming, My lover's never charming...)
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To: tmp02

Oil is the main factor. It is at $50 and has a lot more upside and relatively little downside. If oil gets to $100 we will already be in big trouble, and China and Europe in worse trouble.


48 posted on 11/23/2004 5:44:48 PM PST by RightWhale (Destroy the dark; restore the light)
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To: tmp02

Let me guess, a blue state type of guy who stopped taking his meds?


49 posted on 11/23/2004 5:45:58 PM PST by Coachm
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To: Porterville

I liked the writing, but what is a "quad," "Pismo," and "Central Valley?" Pismo Beach? Central Valley in California? No idea about "quad."


50 posted on 11/23/2004 5:47:20 PM PST by durasell (Friends are so alarming, My lover's never charming...)
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