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To: Sonny Blue who wrote (177972)	7/8/2002 10:25:04 AM
From: Les H	Respond to of 436258

Global Economics: The Trees or the Forest? Stephen Roach Myopic debate. The financial market debate has become increasingly short-term in focus. Meanwhile, tectonic shifts are occurring in the macro climate that have altered the rules of engagement in financial markets. America's bubbles. The popping of the equity bubble has led to an unwinding of excesses in the real side of the U.S. economy; the first shoe to fall was the capacity overhang of earnings-battered businesses, whereas next to come should be the spending excesses of saving-short and overextended consumers. Dollar bubble. For seven years, dollar strength has helped create the ultimate in virtuous circles, leaving a U.S.-centric global economy with little to fear. A weak dollar denies investors the cover they had grown accustomed to — putting today's Latin American currency crisis in a very different light. Central banks challenged. A Latin currency crisis, in conjunction with a weaker dollar and an increasingly fragile recovery in the global economy, makes a post-September 11 recalibration of monetary policy less likely. Today's world is more deflationary than it was nine months ago. Policy surprises. Consistent with my belief in the possibility of a double-dip in the U.S., I would now assign a 40% probability to a Fed easing between now and year-end 2002. Similarly, I think the odds of an ECB tightening are falling dramatically. Loss of power. Just as the Bank of Japan has been frustrated by "pushing on a string" over the past decade, the Fed may find it exceedingly difficult to get policy traction in the years ahead. The era of the omnipotent central banker has drawn to a close. morganstanley.com