Morgan Stanley: US heading into recession, will drag down global economy

Stephen Roach, Chairman of Morgan Stanley Asia, is absolutely correct. To minimize the severe impact of a US recession is foolish. Global economies are all connected so to think that any country or region can afford a recession by the US is just nuts. As an American who lives overseas but still directly depends on the US economy, I find this period of mismanagement frustrating, if not infuriating.

(After the jump, Roach on why the US recession will negatively impact the global economy.)

Roach, who is chairman of the investment bank and trading firm's Asian arm, said it was wrong to think that the rapidly developing economies of China and India could fully compensate for a US recession.

"What is interesting, and potentially disturbing, is that the rest of the world just doesn't think this is a big deal any more," he said of the potential of a US recession.

"There is a view that the world is somehow decoupled from the American growth engine.

"I think that view will turn out to be dead wrong, and this is a global event with consequences for Asia and Australia."

Roach, in Australia for a business roundtable, said economies outside of the US needed to determine how their internal consumer demand compared with demand from American consumers in terms of keeping their economies booming.

"My conclusion is: not nearly as much as you would like," Roach said.

Growth in Asia was export led, with the American consumer often the "end game" of the Asian growth machine, he said.

"The US is a 9.5 trillion US dollar consumer. China is a 1.0 trillion US dollar consumer. India's a 650 billion US dollar consumer," he said.

"Mathematically, it is almost impossible for the young dynamic consumers of China and India to fill the void that would be left by what is likely to be a significant shortfall of US consumer demand."