USA And The Future Of The World

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<b>Roach Says U.S. Economy Is Vulnerable to Relapse (Update1)</b>
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By Brian Swint and Betty Liu

Sept. 15 (Bloomberg) -- The U.S. economic recovery will be “anemic” and prone to a relapse because it lacks momentum, Morgan Stanley economist Stephen Roach said.

“The economy is growing very close to what people refer to as a stall speed,” Roach, chairman of Morgan Stanley Asia, said in a Bloomberg Television interview today. “It lacks a cushion should there be something unexpected. When those shocks come, you don’t have the cushion and you’re vulnerable, you could have a relapse. Any recovery from a relapse will also be anemic. This is not the environment for a V-shaped recovery.”

The economy has lost about 6.9 million jobs since the recession started in December 2007, the worst of any downturn since World War II. Economists predict the U.S. economy will grow at an annualized pace of 2.9 percent in the third quarter after a 1 percent drop in the three months through June, according to a Bloomberg survey.

Federal Reserve Chairman Ben S. Bernanke said today that the recession has probably ended.

“Even though from a technical perspective the recession is very likely over at this point, it’s still going to feel like a very weak economy for some time,” Bernanke said in Washington.

Roach said President Barack Obama’s Sept. 11 decision to impose duties on imported Chinese tires may create more trouble for the economy.

‘Worrisome Development’

“The tire tariffs invoked a few days ago are a recognition that the president needs labor to get health care through,” said Roach, speaking from London. “But down the road this is a worrisome development because unemployment is high as it is and will likely rise further.”

Obama said in an interview yesterday that the tariffs won’t spark a trade war or a cycle of retaliation. Obama said last week that he will impose duties of 35 percent on $1.8 billion of automobile tires from China, acting on a petition by the United Steelworkers union.

Roach also disagreed with Obama on the need for a change of culture on Wall Street. Obama yesterday said bankers took “exorbitant risks with huge leverage” and inflated bonuses.

“With all due respect to the president, who I voted for, I don’t think he’s really described the culture of a Wall Street that I know and that I’ve worked in for 30 years,” Roach said today. “Certainly there are problems that have been evident on Wall Street in this last 10 years, and we should accept our responsibility for them.

“Washington played an equally significant part in failing to oversee the financial system from the standpoint of its regulatory standpoint as well as from its monetary policy by the central bank,” Roach said. “We’re all in this together, and the president should be held at his word of shared responsibility for the crisis.”