Throwing money at a country in debt will not solve its problems if consumers refuse to spend, said Stephen Roach, non-executive chairman at Morgan Stanley Asia, on why a second round of quantitative easing (QE) from the U.S. Federal Reserve will not work.
"When you have an economy that's delevering, and you throw liquidity at it, do you think American families are just going to say we have a lot of money, lets just go back into debt again or let's squander our savings?" Roach told CNBC Tuesday.
"American families have been shocked by the most devastating crisis and recession since the depression and they’re doing rational and prudent things in rebuilding their family finances and restoring the integrity of their balance sheets as they get older and head towards retirement," he added.
"QE1 didn't work. QE2 didn’t work. QE12 won’t work."
Despite his warning, the renowned bear still expects to see more hot money sloshing around in the next several months as major central banks turn on the taps again for another round of QE.
"Given the high returns in this part of the world, the excess liquidity is certainly coming to China and other countries in developing Asia," he noted.
He also cautioned against blaming China for global imbalances amid growing calls by U.S. lawmakers for Beijing to strengthen its currency.
"The U.S. has bilateral trade deficits with 90 countries, China is one of them. That means (there are) 89 others. If we close down trade with China ... the Chinese (will) just go somewhere else until we deal with our fundamental problem, which is savings," Roach said, adding that the U.S. has the "lowest savings rate in the history of the world for a leading economy."
He added that the world should be putting pressure on China to boost its internal consumption, and not pressure the country to "destabilize its financial sector by a sharp, ridiculously irresponsible increase in the renminbi."