Henry Blodget conducted an interview with Morgan Stanley Asia Chairman and Yale Professor Steve Roach last Friday that's definitely worth the read.
BLODGET: Thanks for doing this, Steve. Great to see you. So where are we in the world economy these days?
ROACH: Japanese-like outcomes in the developed world, from Japan in its third lost decade to stagnation in the U.S. to recession in Europe. And I say Japanese-like because these are not temporary slowdowns. They are going to be lasting because of the damage done during these massive credit, property — and in the case of Europe — currency and interest rate bubbles for Southern European economies.
BLODGET: Is there anything that can be done to change this or is it just a matter of time?
ROACH: It is going to take really aggressive structural policies aimed at changing behavior rather than the big bazooka of monetary and fiscal stimulus, which the authorities have embraced as an answer to a crisis. I think what we found in '08 and '09 is that aggressive monetary and fiscal stimulus can stop the crisis but it can't spark a sustainable recovery. There's no traction when you're in a 'liquidity trap' when interest rates are too low and debt loads are too high to get real actors in the economy to respond.
BLODGET: And when you draw the Japan comparison, do you really think it's 20-plus years for the U.S.?
ROACH: I don't know, I honestly don't know. But one of the great courses I'm teaching at Yale is called "The Lessons of Japan." You spend five weeks studying what happened in Japan and developing metrics to calibrate the excesses pre-bubble, the mistakes made post-bubble, and then we look at that template relative to other countries in the developed and developing world and there's a lot of striking similarities. Especially insofar as the U.S. and Europe let these bubbles and policy blunders distort the real side of their economy. It would be one thing if these were just financial or market-driven excesses. But they're not.