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Fed 'Repression' Penalizes Savers: Morgan Stanley's Roach

Thursday, 27 Oct 2011 | 3:10 PM ET

The Federal Reserve is penalizing consumers by keeping interest rates near zero, threatening long-term savings and the U.S. economy, Stephen Roach told CNBC Thursday.

Stephen Roach, senior executive with Morgan Stanley
ChinaFotoPress | Getty Images
Stephen Roach, senior executive with Morgan Stanley

The Fed said in August it will keep interest rates at the current low rate until 2013.

Roach, Morgan Stanley's Asia non-executive chairman, said doing so raises a serious question "about the financial repression practiced by your favorite central bank, the Federal Reserve. The idea that we can run zero interest rates in perpetuity and penalize savers is absurd."

Roach, who previously told CNBC a national consumer debt forgivenessprogram might be needed to take the burden off consumers, said the U.S. balance sheet won't be "fixed" in his lifetime.

"We’re going very, very slowly," said Roach, who is also a senior fellow at Yale University's Jackson Institute.

He said one of the big disconnects in the U.S. policy debate right now is a fixation on stimulus packages, the Fed's "unconventional monetary policy," and President Barack Obama's jobs bill at the expense of helping Americans get rid of their increasing debt load so they can save more.

Fixing the U.S. Economy
A deal is done in Europe, but what about the debt in the U.S.? Insight with Stephen Roach, Morgan Stanley Asia non-executive chairman, who believes we need to greatly increase the savings rate in this country.

"Do you know that half of American workers have no retirement fund?" he asked. "Until we address the debt overhang of the American consumers, especially mortgage debt…this consumer recovery is going to be anemic and hobble U.S. economic growth and U.S. employment growth."

He added: "We’ve got to get together and get real on policy debate here. We’re not doing it at all."

Americans need to save a lot more over the medium to longer term, Roach said.

"How else are we going to fund economic growth?" he asked "Right now we’re borrowing surplus savings from abroad because we don’t save a nickel at home, and we have to wean ourselves from that."

As to Asia, he scoffed at the "China doomsday crowd" that "comes out of the closet and they talk about the coming collapse of China." Roach said he believes China is doing a good job in navigating treacherous global waters and called that "an opportunity for us in the west rather than a threat."

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