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Stephen Roach, head of research at Morgan Stanley Asia, says the second wave of the crisis is right around the corner.  It’s hard to argue with that considering the money printing program the Fed announced yesterday.  If the dollar were to come under attack by foreign investors we could see things unravel pretty rapidly.

“I think the second wave will be driven by the weakening of profitability of corporations around the world and that will have a negative impact on their ability to pay back loans to banks and other financial institutions,” said Roach in an exclusive interview with Xinhua at Morgan Stanley Asia’s headquarters.

“When the year is finished, I think 2009 will represent the first decline for an entire year in world GDP we have see since the end of World War II,” he said.

Roach said that the drops of the global economy in the last three quarters of the year may not be as severe as in the early months of 2009, but the global economy is going to keep declining.

“There is weakness across the world. Every major developed economy is in recession. We’ve never seen that before,” he said.

“The deterioration is sharpened. Interest rates don’t provide relief as in normal environment. This occurs very rarely, and it doesn’t have a precedent in the past,” he said.

The global economy is going through major asset-bubbles, he said, noting individuals and businesses have borrowed too heavily, and as those bubble are built up, they then move to the phase of reducing the borrowing, which is called “deleveraging”.

The force of deleveraging are so powerful that even lower interest rates do not stop them, he said.

“So the major risk here is the stimulus policies that we have seen are not enough or not efficient to stop such very rare post- bubble downturn in the global economy,” he said.