Tags: Stephen Roach | morgan stanley | federal reserve | crisis | bernanke

Roach: Fed May Cause Another Crisis

By Julie Crawshaw   |   Wednesday, 16 Dec 2009 03:44 PM

According to Morgan Stanley Asia chairman Stephen Roach, the Federal Reserve may cause another crisis by botching the withdrawal of liquidity from the U.S. economy, Bloomberg reports.

"There is a great risk in the coming exit strategy," Roach, a former Fed economist, said at a recent conference in Berlin.

"They are lacking primarily a political will to execute the exit in a timely and expeditious fashion that will avoid the mistakes of the last crisis."

“They need to be very early in executing their exit strategies,” Roach told Bloomberg.

“I take Mr. Bernanke at his word that he’s looking for an extended period of monetary accommodation, which, quite frankly, I find very worrisome in assessing the prospects of a next bubble and the next crisis.”

“If we don’t fix this problem we’re doomed to repeat the failed asymmetric policies of the past and set ourselves up” for another crisis by failing to tighten monetary policy in time to prevent asset bubbles from forming.

The Fed, Roach says, fueled the subprime mortgage market boom and subsequent bust by being “quick to slash, slow to normalize” interest rates.

The federal funds rate has been in a record-low range of zero to 0.25 percent for the past year.

"Though we have begun to see some improvement in economic activity, we still have some way to go before we can be assured that the recovery will be self-sustaining," Fed chairman Ben Bernanke said in a recent speech.

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According to Morgan Stanley Asia chairman Stephen Roach, the Federal Reserve may cause another crisis by botching the withdrawal of liquidity from the U.S. economy, Bloomberg reports. There is a great risk in the coming exit strategy, Roach, a former Fed economist, said...
Stephen Roach,morgan stanley,federal reserve,crisis,bernanke
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