Tags: Roach | US | Recovery | Fragile

Yale’s Roach: U.S. Recovery Is ‘Fragile’ Because of Debt

By    |   Thursday, 23 February 2012 08:19 AM

Yale University Professor Stephen Roach said the U.S. economy remains fragile because consumers are struggling with a heavy debt burden.

“It’s pretty fragile,” Roach said on CNBC television from New York today. “Debt is high, savings are very low.”

Roach, Morgan Stanley’s former chairman for Asia and chief economist, said that a drop in U.S. jobless claims may be sending a “false signal” and won’t necessarily power economic growth.

The turn in the economy “has been glacial, the improvement minimal,” he said.

“It’s better than it has been but we’re very far away from a normal vigorous recovery,” he said.

“I’m not prepared to give the U.S. a green light. The biggest sector of the economy, the consumer, is still on ice,” he said. “The growth rate for consumption over the past four years, that’s 16 quarters, is 0.5 percent. It’s hard to get the economy going with that.”

Roach has called for a national debt forgiveness program to help consumers get out from under what he has called the Federal Reserve’s interest-rate “repression,” which he claims has penalized savers.

He said that in the years leading up to the 2008 recession, many Americans borrowed too much, didn’t save enough, and saw the value of their houses go underwater.

Today, consumers are “scrambling around to repair their balance sheets and they’re cutting back on spending while they do the repair,” he told CNBC.

“That’s hobbling demand expectations, which drive hiring by American businesses. The consumer is really the fulcrum for economic recovery going forward.”

Roach said the unemployment rate has fallen “further than the GDP recovery would suggest. So there is a bit of a disconnect there. One of two things could be wrong here. The labor market could be giving a false signal, or the GDP could pick up because of the jobs and income associated with that.”


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Thursday, 23 February 2012 08:19 AM
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