Stephen Roach, chairman of Morgan Stanley Asia, has penned one of the most unapologetic letters bashing the central banking climate we have ever read from an institutional insider (he is still technically part of MS). And Roach should know: From 1972 until 1979, Roach served on the research staff of the Federal Reserve Board in Washington, D.C., where he supervised the preparation of the official Federal Reserve projections of the U.S. economy. As a result he is all too aware of the quality and caliber of Fed individuals. Which serves as the groundwork for this stunning speech presented on October 12 before the World Knowledge Forum in Seoul. The topics covered include the creation of, and asset bubble "resolution" authority , the collapse of America into a Japanese deflation death spiral, the general destructive worthlessness of the Fed, and other such pleasant issues. Most importantly, Roach speaks out in all too clear terms against another "hyper stimulus" round: "Whether it’s the latest round of quantitative easing now under way by major central banks or the polarizing tax cut debate in the US, there is a limited likelihood these measures will achieve meaningful traction in the real economy. The authorities would be much better off not wasting the next stimulus on policies that won’t work and better disposed toward taking actions that are directed at providing support to the true victims of this recession— namely, the structurally unemployed and underemployed." Roach's dire warning: "I fear that unless regulatory reform is accompanied by a rethinking of monetary policy, another crisis is far more likely than not."
And the conclusion, which is pure poetry for anyone whose number one desire is nothing less than to see the end of that most destructive and criminal of organizations, Roach says it best:
Contrary to the view of many, the Great Crisis didn’t have to happen. I reject the excuse offered by many of the apologists that it was a once-in-a-century tsunami that would have occurred in any case – that policy makers could have done little to forestall the outcome. Yet nothing could be further from the truth. Defensive and steeped in denial, policy makers are ducking responsibility.
The recent crisis is a painfully visible manifestation of the greatest failure of central banking since the 1930s. Out of basis points, relying on dubious quantitative easing strategies, and still agnostic when it comes to coping with asset and credit bubbles, monetary policy has become the weak link in the daisy chain. Yet in the rush to re-regulate, central banks have largely been let off the hook. Nor are ever-profligate fiscal authorities exactly a beacon of hope in this crisis battered world.
Out of the darkness of the 1930s, a new approach to fiscal and monetary policy was borne. That renaissance is now over. The Great Crisis of 2008-09 demands a rethinking of the strategy and tactics of orthodox stabilization policies. Glaring shortcomings in our policy architecture must be addressed if the world is ever to learn the most important Lessons of Japan. As day follows night, a failure to learn these lessons almost guarantees another crisis in the not-so-distant future.