The following transcript has not been checked for accuracy.
our guest this morning squawk master stephen roach, morgan stanley's chairman joins us here on set for a couple of hours. sort of doomsday scenario where they stop buying our debt because they have less of a saving surplus, don't feed to recycle their assets into dollars. is that day that far off do you think? carl, they're not going to pull the plug on buying treasuries until or unless they're willing to let their currency move up. as soon as they back out of treasuries, there will be consequences for the chinese yuan. that won't happen till they shift toward internal private consumption. this new five-year plan that was just enacted in march as a pro consumption plan. it's got a lot of policy initiatives designed to shift the gdp into a sector that's really very low by any comparative standards. and over time as they boost consumption, they'll draw down their surplus saving, their foreign reserve exchange accumulation and slow and have less demand for dollar-based assets. we've got to think about that run a policy in america of open-ended budget deficits that requires foreign financing. but i guess until that time where they become a consumer-based economy, can they be scared off by our own eninability to finish off our own debt problems? i think they're worried about the outlook for the treasuries and for the price of the assets they own, some $2 trillion in dollar denominated assets but they're not sellers unless we do something dumb like slap trade sanctions on them which a lot of members of congress want to do. that's a lot of money. the whole gold market is not big enough to park it there. no. you don't want to park it in euros. or portugal debt. yeah. what do you do with that kind of pone? it reminds me of brewster's millions. you couldn't possibly spend it. but i think, joe, that's one of the big issues they're faced with. they built up too much in the way of foreign exchange ares and now have over $3 trillion in total foreign exchange ares. two-thirds of that is in. what would you do with it if you were king? i'd put it to work in stimulating my own domestic economy and funding the social security system. the chinese people don't have a safety net. why not put more money to work in boosting internal development and getting consumers to play a more active part in the economy. they need to do that. do you believe they're overbuilding? no, i don't. i'm not a big believer in that. we said the same thing about shanghai pudong. the largest urban construction in the world. there are now 5 million chinese people living there. we read is the stories about how they're displacing elder people in china, taking them out of the villages they grew up in and sticking them in apartments where they're completely disconnected from social friends and family. they need to move rural inhabitants into the urban countryside for one simple reason. the average per capita income of an urban worker is 3 1/2 times that of an impoverished. if you're an older chinese person not working, you're getting stuck in these places. hopefully you will move families to places of gainful and meaningful employment. and they have a strategy for that are too in their services sector. do we need to rewrite adam smith then because you have bureau cat crates, you have neomercantilism, you have 100 smart people deciding what investments to make and how to allocate resources. economic thinking you would think a purist thinks eventually that comes home to roost. why doesn't it in china? there are no guarantees that it won't, joe. are you surprised it can go on for this long? they that good, these hundred people with supercomputers to be able to tell how to -- they don't feed to let the market set price? as we said earlier, no large country has been able to stay the course of 10% growth in perpetuity. they shift now to more of a consumer based services based economy. that is more a labor intensive growth structure. it isn't state sponsored capital lifts? i think they've learned the state is more effective in formulating the strategy in the contempt of their plans than the market. but eventually they have to let go and they know that. we'll talk some europe in the next hour too. that's right.