Stephen Roach is talking double dip again

Nouriel Roubini is the most prominent economist to warn that a double-dip recession would be a distinct possibility if economic policy-makers return to policy normalization too quickly.  Now, Stephen Roach, head of Morgan Stanley Asia, is making similar arguments. 

Roach was on Bloomberg Radio’s show Bloomberg Surveillance with Tom Keene and Ken Pruitt yesterday, where he had a wide-ranging discussion about the global economy, China, Japan, government stimulus, and a host of other issues.

Some memorable quotes:

• China: “Late last year the Chinese economy came to a full stop and the government embarked on a massive investment and bank lending stimulus that I think is worrisome and not sustainable.”
• Japan: “The key premise I think that needs to occur in Japan as well as the rest of Asia is the need to really put a lot of emphasis on internal private consumption.”
• The Fed: “I am really critical of the idea that we can blame America’s problems on the so-called surplus savings glut primarily from China.”
• The U.S.: It looks like the worst of the downturn is behind us.”
• Banks: “The financial crisis itself is far from over. A lot of financial institutions will continue to find their earnings and their lending capacity impaired.”

The downside risks and double-dip that Roach points to for the U.S. and global economy should not be taken as a ‘base-case’ scenario but rather a possible outcome to avoid through the appropriate economic policy response.  I should note that the same risks were present on a lesser scale after the Technology & Telecom bubble-induced recession in 2001, and Roach warned of these risks at the time. We avoided a double dip in part because of loose monetary policy, which created the housing bubble.

He has a lot more to say. The audio is below and runs about 12 and 1/2 minutes. Enjoy.