Stephen Roach on US, the Fed, China, and Europe

Stephen Roach says the Fed is going all in in support of QE and I agree. But what else are they going to do? Seriously. I have some thoughts; for example, I would never have had a zero rate policy. I do recognise the severity of the situation though. Look at Europe, for example. The ECB there has a hydra-headed problem with sovereigns and banks on the brink of insolvency and they too have expanded the balance sheet like mad. Yet the Europeans are in worse shape than the US, both in terms of sovereign crisis and lack of banking capital as well as in terms of the deleveraging process. None of this will be solved until banks take the credit writedowns and consumers have delevered. Europe is in recession and the US is still at stall speed.

China faces many of the same challenges with excess credit growth and fragile financial firms in the face of asset price deflation. They will socialise the losses associated with this to maintain growth to the best of their ability. Roach thinks the Chinese can do it. Nevertheless, I say growth must take a hit and a hard landing is still a threat.

Video below (hat tip Stevie B)


Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.