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.
Yes, but a quick review of his posts reveals a sordid trail of doom & gloom. Heck, he was even advertising an airing of the movie "Red Dawn". How maudlin can you get?
I agree with almost all of it except:
1) you left out the neoMarxists desire to see the American economy fail, both those at home and overseas. They are kicking at our economic foundations and the Chicoms and Brahmins will yank that rug too.
2) The essential fabric of our society has always been built on the local community (usually church centered) being able to weather any storm. And by Gods Mercy we will yet again.
Your point is well-taken, and the doom & gloom ain't my cup of tea...but he's no worse than some of the other fringers here. :o)
Nice to visit with you. We seem to be singing from the same page of the hymnal. I would like to be convinced all of what you said and what I have said is illogical, but I cannot conclude anything other than what you said. I understand people dismissing people's ideas or prognostications which have not come to pass. Once you get labeled someone who cries wolf, it is hard to get past the ad hominems. But if they would ask themselves some fundamental questions I think they would conclude other than everything is fine. I think most will end up not even knowing it is happening even as it is going on. Even as we speak, the dollar slides inexorably to some unknown low which may trigger a series of events even you and I cannot envision. Things will get out of hand and we may all be casualties. Even President Bush will be unable to reverse these directions if the slide is too far too fast. It is time for men and women who know what to do to speak up and try to make people understand this is not a little jolt. This debt bubble will expand only so far and it will rupture. When it does it won't matter that you and I are right or someone else is wrong. Our way of life will be altered as Americans. I worry for this nation.
Thanks! There are so many "wrong" things going on today, that I was certain I forgot several of them.
you left out the neoMarxists desire to see the American economy fail, both those at home and overseas
They need to bring our economy down, so they can merge us with the rest of the world (i.e., global government).
They are kicking at our economic foundations and the Chicoms and Brahmins will yank that rug too.
Yes.
Thanks. It's true, in our economy if you don't adapt you are gonna die with time like a one week old newspaper. I'm not saying that's necessarily a bad thing, people need to keep alive and be valuable in the labor market.
Seriously though, your concerns are quite reasonable. We do have some economic problems, but they're not as bad as you think. I think part of our problem with China is caused by North Korea--we can't get tough with China about trade because we need China's help with eliminating the nuclear threat from North Korea. This is more of the "Downside Legacy" of the disastrous Clinton Administration. To get our economy back on track, we need to clean up Iraq, bring half our troops home and reduce the cost of that mission by half. Then we need to eliminate the nuclear threat from the North Korean regime. After that, we can get tough with China on trade and push them hard to let our products in and stop pirating so much of our software, DVD's, and entertainment products.
Our economic world is closely connected to all of these national security issues and we must get our security issues solved first. In the meantime, I predict some upswing in technology investment as the big tech over-investment from 1999-2000 is finally worked off next year. I was up early today trading stocks, so I have to get some rest but I'll get back to you later with some more comments.
Economic collapses generally lead to political upheavels which can go either way. During the Great Depression, things went the wrong way (bigger gov't), but prior to the American Revolution, the economic downturns helped the Patriot cause.
It's all about informing the people about what is going on BEFORE it happens.
Unfortunately, most Americans are too distracted by football or "Seinfeld" to pay attention to the real issues. And even if they did, the politicians and media would just feed them even more propoganda.
I think all we can do as individuals is to 1) prepare for ourselves and family/friends, etc.... , and 2) try to wake up as many people as possible.
Treasury Secretary Vows to Halve U.S. Budget Deficit by 2009
Treasury's Snow calls global economic imbalances a shared challenge
Treasury Secretary John Snow says the Bush administration is committed to cutting the U.S. budget deficit in half by 2009 to help address global economic imbalances that may threaten world growth.
Repeating November 21 a vow made previously by President Bush, Snow said that the administration plans to reduce the budget gap over the next four years through spending restraints and growth policies.
On November 19, the head of the U.S. central bank, Alan Greenspan, called reducing the U.S. budget deficit the most effective policy initiative that could be taken to reinforce the mechanisms that promote orderly adjustments to current account imbalances among major trading countries.
The United States' large current account deficit exceeds 5 percent of its gross domestic product (GDP), while many other countries, particularly China, have sizable current account surpluses.
The current account balance is the broadest measure of a country's trade and financial transactions with the outside world.
In a statement issued after a meeting in Berlin of finance ministers and central bank governors from the Group of 20 (G-20) industrial and emerging economies, Snow said that addressing global economic imbalances is a shared challenge. He called for the removal of structural barriers to growth in Europe as well as for flexible exchange rates in Asia "in countries that do not have such flexibility."
The United States and other developed countries have repeatedly pressed China, which pegs its currency to the U.S. dollar at a fixed rate, to move in that direction.
Snow's statement reflected to a large degree views on global economic imbalances and China's currency expressed by G-20 leaders in a November 21 communiqué issued at the conclusion of their meeting. Missing from the communiqué were any references to the decline of the U.S. dollar that has created concerns in Europe and Asia. Some private economists and policymakers in those regions believe that the U.S. trade and current account deficits are to blame for the falling value of the U.S. dollar.
G-20 leaders said that, with high growth and low inflation rates, the 2005 global economic outlook remains positive although they cited oil prices, economic imbalances and geopolitical concerns as major risks.
They also approved the G-20 Accord for Sustained Growth, fashioned after a similar plan adopted by the Group of Seven (G7) industrialized countries, and the related reform agenda with specific policy recommendations for each country.
The G7 comprises Canada, France, Germany, Italy, Japan, the United States and the United Kingdom. G-20 members are the G7 countries plus Argentina, Australia, Brazil, China, the European Union, India, Indonesia, Mexico, Korea, Russia, Saudi Arabia, South Africa and Turkey.
I agree.
Last year, one of the CEOs of a top electronic company remarket, "...not only are the new electronics products not being manufactured in America; the new ones aren't invented in America anymore."
Research & Development leaves along with manufacturing. IT IS A RACE TOWARDS THE BOTTOM.
"Paper is poverty,... it is only the ghost of money, and not money itself." --Thomas Jefferson to Edward Carrington, 1788. ME 7:36
"It is a [disputed] question, whether the circulation of paper, rather than of specie, is a good or an evil... I believe it to be one of those cases where mercantile clamor will bear down reason, until it is corrected by ruin." --Thomas Jefferson to John W. Eppes, 1813. ME 13:409
"That paper money has some advantages is admitted. But that its abuses also are inevitable and, by breaking up the measure of value, makes a lottery of all private property, cannot be denied. --Thomas Jefferson to Josephus B. Stuart, 1817. ME 15:113
"I sincerely believe... that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity under the name of funding is but swindling futurity on a large scale." --Thomas Jefferson to John Taylor, 1816. ME 15:23
"[With the decline of society] begins, indeed, the bellum omnium in omnia [war of all against all], which some philosophers observing to be so general in this world, have mistaken it for the natural, instead of the abusive state of man. And the fore horse of this frightful team is public debt. Taxation follows that, and in its train wretchedness and oppression." --Thomas Jefferson to Samuel Kercheval, 1816. ME 15:40
"It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on would save one-half the wars of the world." --Thomas Jefferson to A. L. C. Destutt de Tracy, 1820. FE 10:175
I have a book that has a bunch of his writings, letters, etc...., but am looking for a good biography of him and his presidency. Can you recommend any?
The University of Virginia, JEFFERSON DIGITAL ARCHIVE @ http://etext.lib.virginia.edu/jefferson/
You still need to have some jack on you in case you run across a 'ville...
I hope we all do. But I'm afraid that the end of the dollar's status as the world's "reserve currency" is coming, and what this coming paradign shift will bring, nobody knows.
Yep. Time to shed debt, and for SURE get out of any adjustable rate mortgages! Invest in precious metals: gold, silver, steel, copper, lead. BLOAT. Time to reef sails and prepare for heavy weather. Moving at least a tankful of gas from any large urban areas might be wise: when the welfare state collapses, and the gas stations and grocery stores are empty (even for a short time) it's going to get UGLY.
Yes sir, history's seen it again and again: the ultimate folley of fiat money and the debt merry-go-round.
But this time the cycle has lasted so long (with the paper dollar serving as the world's reserve currency) that the inevitable crunch is beyond America's memory horizon.
The longer before the reckoning, the worse the collapse. And with America's social fabric so decayed, the economic destruction will rapidly lead to social explosions.
The homies ain't gonna sit quietly in the 'hood, with no gas for their ride and no food in the fridge.
Already there........:o)
Guns
Gold
Groceries
Gas
Girls (3 Rotts)
Stay errr ahhh Get Safe !
Thanks for the TJ linkage. I'm a UVA grad, 1979. My next novel "Domestic Enemies" is set five years after EF&D, on the cusp of total economic meltdown. I'll try to work in some TJ quotes on central banks and the folly of fiat currency.
Of course, five years is very optimistic, IMO. I picked five years mainly for literary reasons. Plus, if I set DE in 2005, there'd be no point in writing it. It would be overtaken by events, perhaps. It may be OBE, no matter when I date the collapse, but what the heck, I'll be optimistic and give us five more years of lessaiz les bons temps rollez. (Pardon my French.)
Interesting times, living through history.
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.