As predictions of a U.S. recession have gone from murmurs to shouts since the beginning of 2008, one recurring comment from analysts has been that this economic slowdown will be different from the dot-com bust.
“In the early 2000s when the bubble burst, it was a much more tech-driven recession and this one is not,” Josh Farina, analyst at TBRI, told eWEEK.
Although many analysts have echoed this sentiment, not all agree. Stephen Roach, a leading economist who heads Morgan Stanley in Asia, told the Telegraph that the scale of the recession facing the U.S. economy today dwarfs that of the dot-com slump.
Roach blames what he calls “relatively sophisticated, well-developed economies” getting hooked on credit.
“Maybe the growth we have been realizing has been something of an illusion predicated on levering our assets, and unfortunately we didn’t fully understand the risks we were taking on … The U.S. has more vulnerability to a post-bubble shake-out today than it did seven years ago, and [more] than in the UK,” Roach told the Telegraph.
Why will it be so much worse than the dot-com bubble bursting? Roach argues that it’s because the chunk of the economy that is shuddering to a halt — homebuilding and housing-dependent consumption — is six times bigger than the IT spending that triggered the last recession.
“The magnitude dwarfs anything we saw seven years ago.”