If you’re like me, you take economic prognostications with a salt shaker (and a back-up) close at hand. Whether it’s ultra-optimist Harry Dent explaining in
The Roaring 2000s how to get rich as the Dow climbs to 35,000-41,000 by 2008, or uber-bear Robert Prechter explaining in
Conquering the Crash how to get rich while everybody else is in the soup line, I’m skeptical that – for all their expertise - either these guys or a bunch of others just like them really knows what’s going on any more than my NASDAQ-happy ex-broker did on March 10, 2000.
In some cases, of course, blind ideology of left or right directs many economists – amateur and pro - to their conclusions. Supply-siders and paleo-Marxists both suffer from the same disease: our theory says this is the way things should be, so, despite contrary evidence, this is the way things will be.
Less ideologically encumbered players do what they can with the tools they’ve got. But modeling the interwoven global economy is akin to modeling the details of climate change. We know what causes a rise in average temperatures or a burst of inflation, but predicting exactly when, how much and all the consequences is, let us say, less than a precise science.
With all these caveats in mind - and fresh off reading about the growing U.S. debt, plus recent news (recounted in some Diaries) about China's attitudes toward the U.S. economy - I was not heartened by this:
Economic 'Armageddon' predicted
By Brett Arends/ On State Street
Stephen Roach, the chief economist at investment banking giant Morgan Stanley, has a public reputation for being bearish.
But you should hear what he's saying in private.
Roach met select groups of fund managers downtown last week, including a group at Fidelity.
His prediction: America has no better than a 10 percent chance of avoiding economic "armageddon."
Press were not allowed into the meetings. But the Herald has obtained a copy of Roach's presentation. A stunned source who was at one meeting said, ``it struck me how extreme he was - much more, it seemed to me, than in public.''
Roach sees a 30 percent chance of a slump soon and a 60 percent chance that ``we'll muddle through for a while and delay the eventual armageddon.''
The chance we'll get through OK: one in 10. Maybe.
In a nutshell, Roach's argument is that America's record trade deficit means the dollar will keep falling. To keep foreigners buying T-bills and prevent a resulting rise in inflation, Federal Reserve Chairman Alan Greenspan will be forced to raise interest rates further and faster than he wants.
Wow. Roach sounds as if he’s channeling Paul Krugman, who today called the U.S. a “banana republic” on America Public Media’s
Marketplace. OK. So Roach is a notorious bear. And I’m sure Harry Dent will take him to the woodshed. But even Dent says that after 2008 or maybe 2010 we’re in for a 15-year-long crash.
Does anything the Bush Administration is doing give you hope that maybe somebody is working on plans to prevent, ameliorate or even acknowledge this possibility?