I don't normally follow economic news much. I found this interesting because you don't generally see such pessimistic predictions from investment bankers. Caution, yes. Meltdown, no. From Economic "Armageddon" Predicted
Stephen Roach, the chief economist at investment banking giant MorganStanley, 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 Fidelity.
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.
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.