Stephen Roach: The End is Nigh (Again)

There is old saying in the forecasting business that if you have to predict, predict often. Morgan Stanley economist Stephen Roach apparently lives by a strange variant of that adage, one wherein you repeatedly predict the same thing, even if it hasn’t happened any of the prior times you predicted it.   

And what is it that the gloomy Mr. Roach is predicting? That the end is nigh. Repent all ye capitalists. Repent. Repent.

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 of Roach’s presentation. A stunned source who was at one meeting said, “it struck 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 the 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 pounded.


  1. As soon as Stephen “Nightmare Scenario” Roach gets the ax I’ll start worrying about armageddon, not before.

  2. IGNORE ROACH AT YOUR PERIL. Yes a broken clock is right twice a day, but Roach is not a broken clock – he has had a consistent message for years: global imbalances cannot persist forever.
    Except now he is no longer the lone voice. Buffett, Greenspan, Grantham, Snow, etc are chiming in and telling us the USD is about to enter a long winter. Yes that last name was correct – Snow is telling us the official US position is that the dollar is free to fall. Massive US deficits are not going to fix themselves – there is no political will to curtail spending in any real sense. The market will fix that though. Asian banks have ALREADY begun to roll back on buying and owning dollars. It was only their support for our debt (and their export market) that kept the thing afloat in any case, and as of March 2004 that support is evaporating. That means interest rates are going to rise, and rise quickly. The money has to come from somewhere folks.
    Incredibly we will see almost all asset classes fall simultaneously….real estate, stocks, bonds. Don’t be so surprised, they have all been rising simultaneously for a couple of years now, so its no shock that they would all unwind at the same time. Jeremy Grantham is right on when he says simply PANIC – do not be holding stocks going into 2005. Grantham is no Robert Prechter perma-bear. You would be wise to listen to him.
    Stocks. Real Estate. Bonds. All are going to drop as the USD drops and interest rates rise. The Euro will replace the USD as the global reserve currency. Gold could very well go through the roof. Many investors who do not understand anything outide of the S&P 500 and the US Ten Year bond are going to get an education that will last a lifetime.