Yale University senior fellow and economist Stephen Roach warns next year will be brutal for the dollar and the economy.
Not only does he see growing odds of a double-dip recession, he told CNBC that his “seemingly crazed idea” that the dollar would crash shouldn’t be so crazy anymore.
“We’ve got data that’s confirmed both the saving and current account dynamic in a much more dramatic fashion than even I was looking for,” Roach told CNBC.
“The current account deficit in the United States, which is the broadest measure of our international imbalance with the rest of the world, suffered a record deterioration in the second quarter,” he said.
“The so-called net-national savings rate, which is the sum of savings of individuals, businesses and the government sector, also recorded a record decline in the second quarter going back into negative territory for the first time since the global financial crisis,” he said.
“Lacking in saving and wanting to grow, we run these current account deficits to borrow surplus saving, and that always pushes the currencies lower,” he said. “The dollar is not immune to that time honored adjustment.”
Roach, who’s former chairman of Morgan Stanley Asia and lived in Asia during the deadly 2003 SARS epidemic, is also worried about the state of the economic recovery as U.S. coronavirus deaths top 200,000 and Europe sees a resurgence in infections, CNBC explained.
“As we head into flu season with the new infection rates moving back up again with mortality unacceptably high, the risk of an aftershock is not something you can dismiss,” Roach said. “The record of history suggests that this is not a time unlike what the frothy markets are doing to bet that this is different.”
Meanwhile, the panel of elite economists who judge the dates of U.S. recessions is finding that declaring an end to this year’s downturn is tougher than calling its start.
The National Bureau of Economic Research’s business cycle dating committee announced in June that the Covid-19 recession began just four months earlier in February -- the shortest time yet for a decision that can take a year or more, Bloomberg said.
Most broad indicators including jobs, consumer spending and manufacturing have turned positive since May, suggesting that the slump could already be over; third-quarter figures are projected to show a record increase in gross domestic product, following the prior period’s record contraction.
But the NBER panel has held off from an official call on the recession’s end. While committee deliberations are secret, some individual members indicated they’re waiting for more evidence of a sustained recovery amid concerns about a slowdown in employment gains and risks of a renewed downturn.
If that happens, it would spur debate on whether it’s part of the same recession or constitutes a second recession.
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