Morgan Stanley's (MS) Roach Says IMF Using Water Pistol on Forest Fire, Calls Out Chanos on China

Morgan Stanley (NYSE: MS) Asia non-Executive chairman Stephen Roach recently spoke on Bloomberg TV about the rumored European proposal to channel central bank loans through the International Monetary Fund. The exec also commented on Chinese banks and the U.S.

The following are some of the highlights from his interview:

• He says using a bazooka to put a floor on markets is good in theory, but Europe isn't using a bazooka.
  
  
• $270 billion is "chump change" in the overall context of Europe's debt overhang.
  
  
• The proposal doesn't foster sustainable and meaningful economic recovery.
  
  
• What about Europe's fundamental issues, it's lack of a fiscal transform mechanism and its debt burdens will continue to grow as the area slips back into recession.
  
  
• When asked what amount would need to be used to be considered a bazooka, Roach said during the U.S. crisis, Roach noted quantitative easing and other programs thrown together by the Fed were able to provide about $12 to $13 trillion of funding, which he says clearly put a floor on the crisis and fostered an upturn in the risk markets.
  
  
• On China: He also hopes Jim Chanos, the asset manager who is a short-seller of China and says the banking system is built on quicksand, will try going to China for the first time, and see "it for himself."
  
  
• He thinks concerns regarding nonperforming bank loans are vastly overblown, and they're much more liquid given the huge deposit base.
  
  
• On the recently-lowered reserve rate, he thinks its due in part to the softening in Europe, and that more softening is likely.
  
  
• He sees further deceleration in China inflation in the months ahead, particularly with the falling of food prices.
  
  
• In the U.S.: Roach thinks weak demand should be priority number one in Washington. "If you don't expect your markets to be expanding, why are you gonna hire a lot of people?" Roach commented.
  
  
• On today's jobs numbers, he thinks the Obama administration would consider the glass getting "a little more half full," but a full blown celebration from the dawning of a new economic recovery isn't in the cards. Notably, no celebration happened.

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