Nouriel Roubini: ‘Mother of all carry trades’ Sows Seeds of Next Financial Crisis

By on November 15, 2009

Renowned economist and NYU professor Nouriel Roubini has said by borrowing dollars at near zero interest rates and investing in higher-yielding assets across the globe, investors are creating a financial bubble which will eventually bust. He indicates the Federal Reserve is fomenting this environment by making statements that they intend to keep rates low for an extended time period.

From the article (source below):

“Everybody’s playing the same game and this game is becoming dangerous,” Roubini said. A flood of liquidity is driving markets higher and carry traders have been further emboldened by the Federal Reserve’s recent promise to keep rates “exceptionally low” for an “extended period”.

Official policy, according to Roubini, is a disaster in the making and will eventually lead to “the biggest co-ordinated asset bust ever”. Another prescient market call or evidence that Roubini is a one-trick pony trading on his ‘Dr Doom’ moniker? In fairness, Roubini acknowledges that most assets are not actually at bubble levels. Whether the current “wall of liquidity” chasing global assets will change that will become clearer in the coming 12 months.

There are interesting comments from Jim Rogers, Jeremy Grantham, Allan Conway, and Willem Buiter included in the Irish Times article written by Proinsias O’Mahony.



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