The Paradox of Stability – Stephen Roach

I am getting challenged more and more these days as to why I believe imbalances will ever come to a head. Motive is not my concern. I certainly concede that it is in everyone’s best interests to put off the day of reckoning. The big question is, Can they?

The answer lies in what can be called the “paradox of stability” — the possibility that a seemingly tranquil status quo is, in fact, masking a dangerous build-up of tensions. That is a clear risk today, in my view. While it is possible and, for some, even easy to draw comfort from the appearance of a new symbiosis between debtor (America) and creditor nations (mainly in Asia), there is a worrisome undercurrent of tensions now building. Such signs are evident on the real side of the global economy, its financial underpinnings, and also in the political arena. Ironically, this confluence of forces could well be reaching a critical mass just when investors have mistakenly concluded that this new symbiosis — code words for yet another New Paradigm — is rewriting time-honored macro rules.