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)