Stephen Roach - a dangerous sense of déjà vu

Unwittingly, the Depression Foil might well end up recreating this madness. With the risk of a depression viewed as completely unacceptable to the global body politic, the full force of the policy arsenal is being aimed at jump-starting aggregate demand -- irrespective of the consequences such results might imply for a new build-up of global imbalances.

Once again, the U.S. is leading the charge. The Fed wants to get credit flowing again to still overextended American consumers, especially in mortgage markets. The Congress wants to stop the bleeding in the housing market -- irrespective of the persistent imbalance between supply and demand. And the White House wants consumers to start spending again -- to avoid the perceived pitfalls of the “paradox of thrift” brought about by too much saving.

Put it together and it all smacks of a dangerous sense of déjà vu: promoting a false recovery by kick-starting overextended, saving-short American consumers to borrow once again by leveraging their major asset.

Fortunately, the American consumer is smarter than the quick-fix Washington mindset. Shell-shocked families -- especially some 77 million baby boomers for whom retirement planning is an urgent imperative -- know they have no choice other than to save. The personal saving rate has risen from 0.8 percent to 4.2 percent in the past six months alone, and is on its way to a new post-bubble equilibrium that I would place in the 7.5 percent to 10 percent zone.

Averting Depression as Consumer in U.S. Fades: Stephen Roach - Bloomberg.com: Stephen Roach is chairman of Morgan Stanley Asia