Bush's policies mean financial catastrophe

Toast anyone?

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Economic `Armageddon' Predicted
Tuesday, November 23, 2004

Stephen Roach, the chief economist at investment banking giant Morgan Stanley, has a public reputation for being bearish. But you should hear what he's saying in private.

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 here 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......

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.
$2.6 billion in cash. Every working day.
$2.6 billion in cash. Every working day.

That is an amazing 80 percent of the entire world's net savings.
Sustainable? Hardly........

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Meanwhile, he notes that household debt is at record levels.
Twenty years ago the total debt of U.S. households was equal to half the size of the economy.
Today the figure is 85 percent.

Americans are already spending a record share of disposable income paying their interest bills. And interest rates haven't even risen much yet.

Roach concluded that a ``spectacular wave of bankruptcies'' is possible. It is undeniable that America is living in a ``debt bubble'' of record proportions.

Greenspan might instead deliberately allow the dollar to slump and inflation to rise, whittling away at the value of today's consumer debts in real terms. Inflation of 7 percent a year halves ``real'' values in a decade.

It may be the only way out of the trap.

Higher interest rates, or higher inflation: Either way, the biggest losers will be long-term lenders at fixed interest rates.

You wouldn't want to hold 30-year Treasuries, which today yield just 4.83 percent. And those who are are not encouraged to buy more. so the same thing is happening to America as happened to Germany after its WW1 - overspending the budget has real consequences. America will be rolling whellbarrows full of dollars to buy one loaf of bread...

http://business.bostonherald.com/businessNews/view.bg?articleid=55356

http://business.bostonherald.com/businessNews/view.bg?articleid=55356
http://www.timesonline.co.uk/article/0,,1052-1369393,00.html