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.

FILED UNDER: Economics and Business
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. k says:

    Mr. Roach has been saying and writing similar things for several years. This is not anything new IMO.

  2. Bithead says:

    Also, I question the timing.

    Ask yourself; would Roach be making these pronouncements had John Kerry won the election? More; if he had, and had Roach made the predictions anyway, would the press be quite so eager to serve them up?

    I doubt it.
    I smell a fish.

  3. M. Murcek says:

    Right up there with that fantastic movie “The Late, Great Planet Earth”

  4. Anjin-San says:

    Roach may be blowing smoke, but that does not change the fact that the deficit is scary, spending is out of control, and there the Bush admin does not seem to have a plan to deal with any of it.

    Overseas banks are financing a large portion of the Bush deficit. What they give, they can take away.

    If this does not scare you, you are watching too much “reality tv”.

  5. Bithead says:

    It would scare me, if I thought for a split second that they could profit by taking it away. As it is, doing so eliminates their own successes.

    Who would they be trading with, afterward?

  6. This has been a hot topic lately, and with good reason. There probably will have to be adjustments — increased interest rates should do it, though I hope it is timed well — but it won’t be the catastrophe Roach suggests. I remember that Batra book and was trying to remember the title a few weeks ago. Thanks for the reminder.

  7. John Thacker says:

    Actions to “reduce the trade deficit” (and the trade deficit is always very dubious anyway, considering that services, including education, that the country does very well aren’t well counted) almost inevitably make us all poorer. That’s hardly a solution.

    Excess worrying about the trade deficit is one of the first signs of economic quackery. The federal government deficit is another thing, of course. (Yet our debt as a % of GDP is still below the other industrial nations, none of which have collapsed either.)

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