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US Recovery 'Engineered Wrongly', Bubbles Forming: Roche

CNBC.com
Monday, 19 Apr 2010 | 12:37 AM ET

The U.S. recovery is being 'engineered wrongly' and may go down the chutes as what policymakers are doing now will trigger more bubbles, David Roche, global strategist at Independent Strategy Limited told CNBC on Thursday.

"U.S. households now get more money from the government than they pay in taxes... If you're at the wrong end of the social scale, it's the right place to live," Roche said.

Recovery is 'Engineered Wrongly': Roche
The way the recovery is being engineered is quite wrong, says David Roche, global strategist at Independent Strategy Ltd, as it is sowing the seeds of greater instability. He talks about the sovereign debt bubble, with CNBC's Amanda Drury & Sri Jegarajah.

"So what the authorities are trying to do is actually to add state leverage, government bond leverage to private sector leverage so that the bubbles go on and the consumption goes on."

The problem is exacerbated by the current easy U.S. monetary policy.

"Because money is free to the banks, the banks do not want to lend that much, so they will actually buy government bonds -- which enables the government to give out some more money," Roche explained.

"If you accept that what caused the credit crisis in the first place was too little savings and too much borrowing and too much easy financing of that borrowing, you're now repeating the same errors."

Roche said he takes issue with the architecture of the recovery as it is "sowing the seeds for future greater instability."

"When the sovereign credit bubble goes (bust), there will be no more policy tools left to bail the world out of its own profligacy."

"It's a situation which is fine if you're going down the chutes."

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