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Stephen S. RoachStephen S. Roach - as of 2004 is the chief economist and director of global economics for Morgan Stanley. Roach is a graduate of Haas School of Business, University of California, Berkeley, and is not to be confused with the Ambient music artist Steve Roach. Due to his generally pessimistic forecasts, Roach has been called by some a "perennial bear", and consequently has drawn attention in the popular press, in particular after the 2001 world recession. In November 2004 Roach predicted an 'economic Armageddon', in part due to the record U.S. current account, trade and government deficits. According to some reports Roach in private predicted the chances of the US escaping a financial Armageddon were less than 10%. The basis for Roach's pessimism is that some statistics show when government debt grows to greater than 50% of GDP, interest rates must go up dramatically or risk the chance for hyperinflation (as of November 2004 the U.S. government debt ratio stands at 37%). Increased interest rates will dampen the US economy if large deficits are present, a variant of the 'crowding out' thesis. The "crowding out" thesis is that a decline in capital goods investment occurs when interest rates rise due to expansionary fiscal policy by government. Economic growth is reduced if the government expansionary policy is not of the type that promotes growth, such as is not investment in infrastructure, research and development, education, or other growth promoting enterprise. Since payment of interest on the national debt is not a growth promoting enterprise, presumably crowding out will occur if interest rates rise due to a falling dollar. Roach's bearish prediction on the US economy in view of the falling dollar is rebutted by Arizona State University Economics Professor Edward Prescott, who also works for the U.S. Federal Reserve, and is the 2004 winner of the Nobel Prize in Economics. Prescott feels the US is not near any danger point due to the falling dollar. Whether or not financial Armageddon comes, Stephen S. Roach will undoubtedly continue to be quoted in the press.
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