Stephen Roach: Chance of Double Dip 40%

Here is more of Marc Faber, this time with Stephen Roach joining from Asia. Faber starts things off by making a point I have made many times in the past, namely that the Federal Reserve’s easy money policy is asymmetric; they are quick to cut on the way down, but slow to raise rates on the way up.

This is actually two times easy – easy when faced with an asset price implosion to the downside and easy when faced with an asset price explosion to the upside. The result is excessive risk-taking as investors reach for yield and load up on leverage cognizant that the Fed is there to bail them out with easy money when the going gets tough.

Roach agrees with this view, adding that he meets so much resistance when he voices concerns of this nature, his contrarian nature makes him think that point “is spot on.” As for the recovery, Roach sees a 40% chance of a double dip. He is not optimistic about the chances of sustained global growth because of writedowns and anemic U.S. consumer spending in particular.

I should add that Roach seems less optimistic about Asia than Faber because he realizes that the Asian central banks are still in a heavily accommodative mode on monetary policy despite galloping economic growth and asset price increases. China is exhibit number one on this score.


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