Morgan Stanley’s Stephen Roach sees “years of retrenchment” ahead for the “zombie” U.S. consumer, a trend that he says will force Asia’s giant exporters to look inward for growth.
“Afflicted by historically high unemployment, massive under-employment, and relatively stagnant real wages, while burdened with underwater mortgages, excessive debt, and subpar saving, U.S. consumers are stretched as never before,” Roach writes in an online column for Project Syndicate.
“Yet the U.S. government has tried virtually everything to prevent consumers from adjusting.”
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Extending unemployment benefits, mortgage forgiveness, and massive government and monetary stimulus are likely to “inhibit the deleveraging and balance-sheet repair that America’s zombie consumers now need for post-crisis healing,” maintains Roach, a faculty member of Yale University and author.
“Notwithstanding government life-support initiatives, U.S. consumers seem headed for years of retrenchment,” he writes.
Roach sees “subdued growth” in the United States, much like what has happened to Japan since the early 1990s, a time period that the former Pacific Rim powerhouse now dubs “the lost years.”
With U.S. consumers on the sidelines and tens of millions headed into an underfunded retirement, it’s unlikely that Asian exporters can count on extracting much more prosperity what had been the engine of their growth, Roach predicts.
“Nowhere is that more evident than in China,” Roach writes. “With private consumption having fallen to a record low of 35 percent of GDP in 2008 (fully ten percentage points below the Asian norm), China faces major rebalancing imperatives — all the more urgent if post-crisis consumption growth in the West remains weak.”
Roach’s assessment echoes that of bond giant Pimco, whose managers have been predicting since mid-2009 that the United States is entering a long-term slow-growth phase it dubs the “new normal.”
Pimco Founder and Co-Chief Investment Officer Bill Gross, who manages the huge Pimco Total Return bond fund, has long maintained that, as a result of slower growth, investment returns will be lower than what many expect.
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