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.