Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Open Letter

By

PrintPRINT


On Friday, Stephen Roach, Chief Economist at Morgan Stanley, wrote an open letter to Mr. Greenspan emphatically urging the Chairman of the Federal Reserve to immediately raise the fed funds rate in one move from 1% to 3%. I have written before that real rates are negative and that the "theoretical" fed funds rate is 3%, so for my part I strongly suggest everyone read this letter.

The letter is very straightforward, the major innuendo and relevancy coming in one paragraph:

"There's something else I don't get. You are very upbeat about economic prospects, recently presenting a forecast to the U.S. Congress that real GDP would rise 4.5 percent to 5 percent over the four quarters of 2004. This is solid growth for any economy. But you still insist on keeping interest rates amazingly low. A normal economy needs normal interest rates. With your forecast, you should have nothing to be afraid of. Am I missing something?"

Mr. Roach is being rhetorical and is not missing anything. He knows that this recovery is built on high debt requiring massive amounts of liquidity to spur inflated asset prices. The economy is like a balloon with a leak: it needs a constant flow of new air to keep it inflated. Today it takes $6 of new debt to create $1 of GDP, an astounding number.

Mr. Roach is one of the few economists not willing to stand idly by and watch what is happening. He laments at the lack of independence, which is legislative in nature, exhibited by the Federal Reserve in an election year.

His concern for current economic policy is evident in his letter. I urge you to read it.
< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE