US recession will dwarf dotcom crash

[flashl]

The recession facing the United States is of a scale that dwarfs the dotcom slump. The slowdown will cause a damaging regulation backlash as governments attempt to compensate for the financial pain facing families. Britain faces a similar plight, though it may avoid as deep a slowdown as the US.

The views of Stephen Roach, one of the world's leading economists, now heading the Asian wing of Morgan Stanley, would have seemed outrageous at last year's World Economic Forum. It is a sign of the times that they are now close to the consensus. This year's event has been dominated by discussions of the stock market slump on both sides of the Atlantic, the Federal Reserve's emergency interest rate cut and the SocGen fraud disaster.

But underlying everything has been the silent truth that the US is facing a very possible recession, and is fast having to adapt to a far less enjoyable economic climate.

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The reason this crunch will be so much worse, he said, is that the chunk of the economy which is shuddering to a halt - homebuilding and housing dependent consumption - is six times bigger than the spending on IT, which triggered the last one.

"The magnitude dwarfs anything we saw seven years ago."

The endgame, he said, is an "average recession" meaning just over a year's worth of economic shrinking - three times the depth of the recession seven years ago.

Telegraph UK