'Drunken Binge of Excess' Is Over: Stephen Roach

Western economies have woken up with a hangover from a drunken binge of excess consumption and leverage that was reckless and irresponsible, Stephen Roach, chairman of Morgan Stanley Asia, told CNBC.

“The West, especially the Anglo-Saxon economies, went on a drunken binge of excess consumption, leveraged up the eyeballs with totally inadequate savings,” Roach said.

“It was reckless, irresponsible and it’s over,” he added.

Roach said that the consumption binge was not just the fault of consumers, but also of central bankers for leaving monetary policy too loose during times of strong economic growth.

Central banks “were empowered as the ultimate whistle-blowers in a financial system and they failed, utterly failed to do their job in this period of excess,” he said.

- Watch the full Stephen Roach interview above.

Roach thinks that central banks need to be on guard against fueling a future economic crisis and should set out a transparent exit strategy for reversing the stimulus packages meant to deal with the current crisis.

“We on Wall Street deserve our share of the blame, so does Main Street, but so do the politicians,” he added.

While the West is recovering from the hangover of its consumption and leverage binge, Asia will be slow to take its place as a consumer-driven economy, according to Roach.

“Asia is rising, but it’s risen largely on the back of an export-led recovery, selling things to consumers in the West who couldn’t afford what they were buying,” he said.

“There are challenges for Asia as it must now face up to a tougher external demand climate,” he added.

China is still without the “critical missing link” of a social safety-net that would be needed to encourage consumption, but the Chinese government is starting to make steps toward that, he said.

• Market Tips: Double Dip May Be Coming Next Year
• Market Insider: The Bear Equation