Stephen Roach: Economic Armaggedon Here We Come
Stephen Roach as claimed that the U.S. as better than a 10% chance of avoiding economic armaggedon.
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.
This sounds like just plain whacky thinking. It reminds me of the kind of non-sense found in Ravi Batra’s The Great Depression of 1990. Of course, there was no depression in 1990, the 1990’s nor is there any reason to think there will be a depression any time soon. So why would Stephen Roach, a well respected economist make such an outlandish statement? The high trade deficit. The problem is that to finance the high trade deficit the U.S. needs to import staggering amounts of money. This could lead to higher interest rates and given consumer debt it could be a real problem. The other option is for Greenspan to let inflation rise and keep interest rates low.
I think the the prediction of economic armaggedon are over the top. While the current situation may not be sustainable, the idea that it has to lead to a crisis with high probability is not clear.