Stephen Roach: Here’s Why There’s A 40% Chance Of A Double Dip


Steven Roach, Morgan Stanley’s Chairman and former economist, says there’s a 40% chance of a double-dip.

Here’s how he calculates it, as told to the Wall Street Journal in a video interview:

  • Weak recovery
  • Weak labour market
  • Weak consumer purchasing power
  • The consumer, 70% of the economy, is still massively over extended in terms of debt, unprepared in terms of saving
  • We’re unable to rely on property and credit bubbles to support consumption anymore
  • If you have a disappointing consumer and you have any kind of unexpected shock, you could go down again

Double-dips are not as infrequent as you think, he says.

(BTW, the number of people searching “double-dip” in google has spiked recently.)

The predecessor is a weak recovery, and then there has to be some shock [to spark a double-dip].

For what it’s worth, Roach has a lot of critics. Krugman has gone off on his arguments, Mish Shedlock has called them nonsense, and Roach has been saying we’re screwed since last September.

Now check out why Deutsche Bank says we’re NOT headed for a double dip >>