Tags: Stephen | Roach | Shocks | Sluggish | Recovery | Recession

Roach: Surprises May Push Sluggish Recovery Back Into Recession

Wednesday, 22 Sep 2010 12:36 PM

Economist Stephen Roach, nonexecutive chairman of Morgan Stanley Asia, says the recovery will be anemic and sluggish and we’d better watch out for economic shocks.

“When you have a sluggish economy, you don’t have a cushion to help it withstand shock,” Roach told Bloomberg. “If we get a shock, there’ll be a relapse. Call it what you want, a double-dip (or) a new recession.”

The Federal Reserve, Roach notes, “has already used up its traditional medicine and is now going to nontraditional medicine with a lot less firepower than the conventional interest-rate adjustments.”

“Just like the fiscal medicine doesn’t seem to be working, the monetary medicine doesn’t either, and for good reason — American consumers, which are 70 percent of the US GDP, don’t want to spend,” Roach observes.

Instead, consumers are paying down debt and building savings, which are “perfectly rational responses in the aftermath of the binge that prevailed in the decade before this crisis,” Roach says.

“The Fed really doesn’t have a creative script to get us out of this quagmire.”

Reuters reports that the dollar fell to its lowest level versus the yen since Japan intervened last week, with the dollar index hitting a six-month trough after the Federal Reserve raised expectations of more monetary easing.

Additional stimulus by the Federal Reserve, most likely via the purchase of U.S. Treasury debt, will push benchmark yields even lower and further diminish the return on dollar-denominated assets.

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Economist Stephen Roach, nonexecutive chairman of Morgan Stanley Asia, says the recovery will be anemic and sluggish and we d better watch out for economic shocks. When you have a sluggish economy, you don t have a cushion to help it withstand shock, Roach told...
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2010-36-22
Wednesday, 22 Sep 2010 12:36 PM
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