Out of Control Policy Blog

Stephen Roach Calls for New Monetary Policy

Stephen Roach, Chief Economist of Morgan Stanley, have been a critic of the Fed for many years. In a Financial Times op-ed he makes the case for exiting the current monetary policy regime once and for all:

“it is high time to banish the moral hazard of macro policy – the false sense of security provided by open-ended fiscal and monetary accommodation as the world lurches from crisis to crisis.”

Roach identifies easy money as the main underlying cause of the unsustainable bubbles witnessed during the last decades:

“Each crisis has its poster child – from Thailand, to dot-com, to subprime. But they all have one thing in common – easy money. The ‘Greenspan put’ – the notion that central banks would be quick and aggressive in backstopping financial market disruptions – was the short-term anaesthetic that repeatedly set the stage for the next crisis.”

Roach spells out the doomsday scenario of current monetary policymaking (which I have commented upon earlier):

“The pace and severity of financial crises has taken an ominous turn for the worse. Over the past 30 years, a crisis has occurred, on average, every three years. Yet, now, only 18 months after the meltdown of late 2008, Europe’s sovereign debt crisis has hit with full force. With one crisis seemingly begetting another, and the fuse between crises now getting shorter and shorter, the world economy is on a very treacherous course.”


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