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Strategies & Market Trends : China Warehouse- More Than Crockery -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (3533)	10/1/2004 7:30:21 PM
From: RealMuLan	Read Replies (1) \| Respond to of 6370

China slowdown part of a recipe for disaster: Morgan Vanson Soo Oil price increases, over-extended United States spending, the China slowdown, the growth shortfall in Japan and monetary tightening of the US Federal Reserve have created ``a recipe for disaster - a pro-cyclical policy gambit that could well spark the next global recession'', Morgan Stanley has warned. Stephen Roach, the US investment bank's chief economist, said the Federal Reserve should have taken his suggestion to raise its policy rate from 1 per cent to 3 per cent ``in one fell swoop'' earlier this year, when oil prices were much lower and there was much more vigour to the US and global growth cushion. He felt the major central banks worldwide are landing themselves onto a bubble mess and lacking the ammunition to effectively deal with adverse shocks. ``Now, courtesy of the oil shock and increasingly brisk global headwinds, that window has been slammed shut. The case for `opportunistic normalisation' is in tatters,'' he said. ``This is starting to sound like a nightmare scenario.'' His concerns are also echoed by Bill Gross, chief investment officer of Pimco, one of the world's leading fixed-income managers. ``GDP in the US is growing 4 per cent; productivity is high; inflation is low; job growth is resuming,'' said Gross. ``Yet to me, beneath these Loch Ness waters of optimism lies the potential for a monster in the form of excessive global debt to rear its infrequent yet oftentimes destructive head.'' Gross attributed much of the current cyclical prosperity to the ``productivity'' of lower interest rates in a finance-based, debt-laden global economy. ``As those yields reverse, they must be carefully manoeuvred by central bankers in order to prevent bubble popping and global instability,'' he said. The long-term solution is a re-emphasis on savings instead of debt accumulation, a gradual erosion of debt burdens through mild inflation, and a rebalancing of trade deficit imbalances via currency realignment, the experts said. ``If we've brought consumption forward, we must reverse the process and begin to save some nuts for a long demographic winter,'' said Gross. Roach said letting the dollar fall is the key. The balance of payments deficit of the US, standing at a record 5.1 per cent of GDP this year and likely to get worse, begs for a weaker dollar. By the broadest measures of the dollar, the 10 per cent depreciation of the past two and a half years only reflects aggressive dollar buying by foreign banks fearful that their currencies would strengthen as the dollar depreciates, threatening their export-driven growth. The Chinese and Japanese, for example, are spending some US$300 billion (HK$2.34 trillion) a year on US Treasuries to prevent their own currencies from spiralling upwards. He said a sense of sanity might be restored if the dollar is allowed to find its ``natural and presumably lower level''. 2 October 2004 / 02:14 AM thestandard.com.hk