Stephen Roach Explains the European Ponzi Scheme

By on June 28, 2012

Bloomberg’s Tom Keene interviewed Stephen Roach, professor at Yale University and former non-executive chairman for Morgan Stanley in Asia, regarding his sharp criticism of central banks.

Roach talked about a convergence bubble. If you were Spain, Greece, Italy, or Portugal, you didn’t have to focus on the fundamentals of your economy. Their rates stayed as low as Germany’s from 2000 until 2007-2008, even though they didn’t fix their economies, added Roach.

Roach stated that Germany also got a free ride because the peripheral countries couldn’t have afforded to buy their products without the artificially low rates, “so this is a Ponzi scheme.” Europe manufactured growth through financial engineering, Roach explained.

Roach said the recovering U. S. economy has benefited from a global export boom, but now is facing a slowing global economy. In the absence of the boom growth wouldn’t have been 2.4%, it would have been 1.4%, Roach stated.

The interview (below) continues with more commentary on the world economic situation and gold’s function as a store of value.


  1. Wall Street Sucks

    June 30, 2012 at 9:30 pm

    Didn’t Roach get bullish right before the financial crisis a few years ago? Sounds like a typical know-nothing economist.

    • Barron Maestro

      June 30, 2012 at 11:44 pm

      Roach did appear to relax his bearish stance back in April 2006. “The world is finally taking its medicine — or at least considering the possibility of doing so,” he writes. “While an unbalanced world has yet to shake its hangover from global healing, I must confess that I am now feeling better about the prognosis for the world economy for the first time in ages.”

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