Economic Armageddon?? - Aussie Stock Forums

Results 1 to 3 of 3
  1. #1

    Question Economic Armageddon??

    Stephen Roach is apparently very gloomy in private...

    Fair Use For Discussion and Educational Purposes

    Economic `Armageddon' predicted
    By Brett Arends/ On State Street
    Tuesday, November 23, 2004


    Stephen Roach, the chief economist at investment banking giant Morgan
    has a public reputation for being bearish.

    But you should hear what he's saying in private.

    Roach met select groups of fund managers downtown last week, including a
    group at

    His prediction: America has no better than a 10 percent chance of avoiding
    economic ``armageddon.''

    Press were not allowed into the meetings. But the Herald has obtained a copy
    Roach's presentation. A stunned source who was at one meeting said, ``it
    me how extreme he was - much more, it seemed to me, than in public.''

    Roach sees a 30 percent chance of a slump soon and a 60 percent chance that
    ``we'll muddle through for a while and delay the eventual armageddon.''

    The chance we'll get through OK: one in 10. Maybe.

    In a nutshell, Roach's argument is that America's record trade deficit means
    dollar will keep falling. To keep foreigners buying T-bills and prevent a
    resulting rise in inflation, Federal Reserve Chairman Alan Greenspan will be
    forced to raise interest rates further and faster than he wants.

    The result: U.S. consumers, who are in debt up to their eyeballs, will get

    Less a case of ``Armageddon,'' maybe, than of a ``Perfect Storm.''

    Roach marshalled alarming facts to support his argument.

    To finance its current account deficit with the rest of the world, he said,
    America has to import $2.6 billion in cash. Every working day.

    That is an amazing 80 percent of the entire world's net savings.

    Sustainable? Hardly.

    Meanwhile, he notes that household debt is at record levels.

    Twenty years ago the total debt of U.S. households was equal to half the
    size of
    the economy.

    Today the figure is 85 percent.

    Nearly half of new mortgage borrowing is at flexible interest rates, leaving
    borrowers much more vulnerable to rate hikes.

    Americans are already spending a record share of disposable income paying
    interest bills. And interest rates haven't even risen much yet.

    You don't have to ask a Wall Street economist to know this, of course. Watch
    people wielding their credit cards this Christmas.

    Roach's analysis isn't entirely new. But recent events give it extra force.

    The dollar is hitting fresh lows against currencies from the yen to the

    Its parachute failed to open over the weekend, when a meeting of the world's
    finance ministers produced no promise of concerted intervention.

    It has farther to fall, especially against Asian currencies, analysts agree.

    The Fed chairman was drawn to warn on the dollar, and interest rates, on

    Roach could not be reached for comment yesterday. A source who heard the
    presentation concluded that a ``spectacular wave of bankruptcies'' is

    Smart people downtown agree with much of the analysis. It is undeniable that
    America is living in a ``debt bubble'' of record proportions.

    But they argue there may be an alternative scenario to Roach's. Greenspan
    instead deliberately allow the dollar to slump and inflation to rise,
    away at the value of today's consumer debts in real terms.

    Inflation of 7 percent a year halves ``real'' values in a decade.

    It may be the only way out of the trap.

    Higher interest rates, or higher inflation: Either way, the biggest losers
    be long-term lenders at fixed interest rates.

    You wouldn't want to hold 30-year Treasuries, which today yield just 4.83

  2. #2

    Default Re: Economic Armageddon??

    Sorry Wayne..

    Didn't realise you'd posted this earlier

  3. #3

    Default Re: Economic Armageddon??

    Interesting article, in Australia the effect could be worse given the de-regulation of the market leading to greater household debt levels for depreciating assets - exacerbating the effect of interest rate rises (that seems inevitable sooner rather than later)

    Whether you think you can, or think you can't; you are right.

Similar Threads

  1. Terminal Triangle: Peak Oil, climate change and global economic meltdown
    By numbercruncher in forum General Investment and Economics
    Replies: 7
    Last Post: 21st-January-2008, 07:11 PM
  2. Index of Economic Freedom - 2007
    By theasxgorilla in forum General Investment and Economics
    Replies: 2
    Last Post: 13th-February-2007, 10:03 AM
  3. USA economic collapse in 2005?
    By stockGURU in forum International Markets
    Replies: 18
    Last Post: 22nd-June-2005, 02:21 AM
  4. Of economic moats & castles
    By hesance in forum ASX Stock Chat
    Replies: 2
    Last Post: 13th-June-2005, 12:55 AM
  5. Economic Theory
    By Jesse Livermore in forum General Investment and Economics
    Replies: 17
    Last Post: 27th-April-2005, 08:30 PM


Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
Aussie Stock Forums