Home > global economic crisis > Nouriel Roubini Warns That the U.S. Federal Reserve Is Constructing a “Monster Bubble.”

Nouriel Roubini Warns That the U.S. Federal Reserve Is Constructing a “Monster Bubble.”

November 3rd, 2009

 

In the Financial Times Professor Roubini wrote a thoughtful and frightening piece on the implications of the U.S. dollar’s sinking value and its increasing role in the global carry trade. Given Nouriel Roubini’s track record  in offering a timely warning on the collapse of the subprime mortgage  bubble, his latest red flag should be looked at very closely.

In essence, the loose monetary policies of the Fed have  poured a tidal wave of liquidity into the world, in the form of U.S. dollars being offered at effectively zero interest rates while simultaneously being devalued. This explains the explosive role the American dollar is exercising on the carry trade. As Roubini points out, speculators can borrow cheap dollars at effectively negative interest rates, and plough this cheap currency into higher yielding assets available in foreign exchange. What Professor Roubini describes as the “mother of all carry trades” is building a global speculative bubble of vast proportions, and in a manner that is utterly unsustainable.

Roubini closes his sober article in the Financial Times with the following chilling warning:

“This unravelling may not occur for a while, as easy money and excessive global liquidity can push asset prices higher for a while. But the longer and bigger the carry trades and the larger the asset bubble, the bigger will be the ensuing asset bubble crash. The Fed and other policymakers seem unaware of the monster bubble they are creating. The longer they remain blind, the harder the markets will fall.”

 

 

* Global Economic Forecast 2010-2015: Recession Into Depression, now available. More information at:

http://www.createspace.com/3403422

 

For More Information on “Global Economic Forecast 2010-2015” please go to the homepage of our website, http://www.globaleconomiccrisis.com 

 

 

Comments are closed.