ROACH: Well, I hope not. The European authorities have learned a lot from the Lehman and post-Lehman experience. Keep in mind that in the United States, TARP was concocted after the freezing of the markets post-Lehman. And European authorities in conjunction with the IMF have put in place this EUR750 billion Euro facility prior to the risk that could be bearing down on core European banks. So this has been a little bit more preemptive than reactive in the case of Europe and hopefully that will be sufficient to forestall a broader freezing up of credit intermediation in Europe.
LACQUA: Now, what some of the market analysts are asking is well, now the focus is on Europe. We have these bond vigilantes coming into our region trying to either push the levels down or definitely try to push these bonds down. What happens if the bond vigilantes will go to the United States or other parts of the world where we see similar deficits?
ROACH: Look, excess sovereign debt is a problem that is endemic in the developed world right now. And right - at this point in time, we still have ample slack in the global economy and a notable absence of inflationary pressures. But with central banks likely to remain excessively accommodative for - to use Ben Bernanke's word, an extended period of time with fiscal authorities likely to keep stimulus packages in place for equally extended periods of time. Then you know the current benign environment for inflation could give way to more serious inflation down the road and then the bond market vigilantes will be well positioned to drive longer term sovereign bond yields a good deal higher.
LACQUA: All right, Mr. Roach, don't go away. We'll continue our conversation with Stephen Roach after this short break. He'll be back with us from some analysis on currencies in Asia, including China where exports, industrial production and retail sales were all up last month.
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LACQUA: Well still with us is Stephen Roach, China expert and Chairman of Morgan Stanley Asia. Mr. Roach, I wanted to come back very quickly on just interest rates because this of course will have an effect on also the relationship between U.S. and China. Do we have to see second stimulus's or certainly, interest rates being kept at a record low for the whole of this year?
ROACH: I don't think so, Francine. I think policymakers are making a mistake by pretty much replaying the movie that we saw in the aftermath of the bursting of the equity bubble, keeping monetary policy and fiscal policy in stimulative positions for too long, injecting a lot of excess liquidity into markets and economies and it ultimately ends up setting the stage for the next crisis. This is a recipe that did not work out well in the period following the bursting of the equity bubble and I see no reason to believe it's going to work differently this time either.
LACQUA: All right. Now, what's your take on China? Because it does seem that actually growth is very strong, a little bit of concern on asset bubbles over there. And it seems the relationship between the U.S. and China isn't working out as much as Timothy Geithner was hoping it would.
