Friday, October 28, 2011

[Video] Stephen Roach - Fed "Repression" Punishes Savers, U.S. Consumers' Balance Sheet Won't be "Fixed" in His Lifetime

Based on this morning's data, Americans are back to their old ways - personal income rose 0.1% (after last month's -0.1%!) yet spending rose 0.6%.  This sounds like 2006 all over again expect the house ATM has been replaced by the federal government ATM (nearly 1 in 5 dollars of income now comes from transfer payments!)  The personal savings rate (which incredibly fell to a negative reading mid decade) has fallen from the mid 5% to low 6% over the past few years, back down to 3.6%. 
  • The saving rate, the percentage of disposable income socked away, fell to 3.6 percent, the slowest since December 2007, from 4.1 percent in August.

Frankly that's a realistic response to a Federal Reserve policy which is incredibly negative for savers.  We've been waving that flag for a few years [Mar 31, 2010:  Ben Bernanke Content to Sacrifice Savers to Recapitalize Banks and Benefit Debtors] but more voices are coming to the issue.   This reduction in savings is incredibly negative in the long run, as that's a large part of what got us in this huge mess in the first place but all government and central bank policy is for the short term and perverting long term outcomes.

Yesterday Morgan Stanley's Stephen Roach discussed that subject amongst many others in this 9 minute interview with CNBC.   It was actually quite a snippy interview!!(email readers will need to come to site to view)

  • The Federal Reserve is penalizing consumers by keeping interest rates near zero, threatening long-term savings and the U.S. economy, Stephen Roach told CNBC Thursday.  The Fed said in August it will keep interest rates at the current low rate until 2013.  Roach said doing so raises a serious question "about the financial repression practiced by your favorite central bank, the Federal Reserve. The idea that we can run zero interest rates in perpetuity and penalize savers is absurd."
  • Roach said the U.S. consumers' balance sheet won't be "fixed" in his lifetime.  "We’re going very, very slowly," said Roach, who is also a senior fellow at Yale University's Jackson Institute.  He said one of the big disconnects in the U.S. policy debate right now is a fixation on stimulus packages, the Fed's "unconventional monetary policy," and President Barack Obama's jobs bill at the expense of helping Americans get rid of their increasing debt load so they can save more.
  • "Do you know that half of American workers have no retirement fund?" he asked. "Until we address the debt overhang of the American consumers, especially mortgage debt…this consumer recovery is going to be anemic and hobble U.S. economic growth and U.S. employment growth." He added: "We’ve got to get together and get real on policy debate here. We’re not doing it at all."
  • Americans need to save a lot more over the medium to longer term, Roach said.  "How else are we going to fund economic growth?" he asked "Right now we’re borrowing surplus savings from abroad because we don’t save a nickel at home, and we have to wean ourselves from that."
  • As to Asia, he scoffed at the "China doomsday crowd" that "comes out of the closet and they talk about the coming collapse of China." Roach said he believes China is doing a good job in navigating treacherous global waters and called that "an opportunity for us in the west rather than a threat."

[Sep 22, 2011: [Video] Stephen Roach - U.S. Did Not Learn from Japan]
[Jun 7, 2011: Stephen Roach Revisits U.S. & China, Plus the Debt Connection]

[Jan 14, 2011: [Video] CNBC - Stephen Roach Talks U.S. & China]
[May 31, 2009: Stephen Roach on Asia - No Sail]

Disclaimer: The opinions listed on this blog are for educational purpose only. You should do your own research before making any decisions.
This blog, its affiliates, partners or authors are not responsible or liable for any misstatements and/or losses you might sustain from the content provided.

Copyright @2012