New York University economist Nouriel Roubini wrote an article that caught my interest, the reason I'll explain towards the end of this blog. This is my take on his writing after reading the article three times to understand his terminology. When a currency is being devalued and interest rates are extremely low, as we are experiencing right now with the dollar, speculators advance towards what is called carry trades, that being they borrow dollars and invest in riskier assets of other currencies. This is what is happening right now, evidenced by the stock markets advance in the last few months, and enormous profits are being made! The government's policies at this moment are making these carry trades even more inviting to speculators. Other countries are effected as speculators exchange the dollar for their currency and invest there. According to Roubini the mother of all asset bubbles is ahead. Roubini wonders if the government even knows of the monster it is creating. He says that sooner or later the decline of the dollar will end and speculators will become worried and want to cash in. I remember hearing a comment that Alan Greenspan made in answer to a question when before Congress on why he did not anticipate the collapse of the financial system sooner. His answer was something like this I made the mistake of thinking that bankers would do what was best for them. Roubini sees what Greenspan did not see in the financial sector and says ....one day this bubble will burst, leading to the biggest co-ordinated asset bust ever.
One of the fundamental themes of this blog is that man generally has no idea of the immense weaknesses in his nature, in fact we are obsessed with a belief that we call the shots, pull the strings and are masters of our own destiny. The reason that this article caught my interest so was that Roubini was one of the few economists that actually incorporated the world situation into economic prognostications. He even mentioned the potential upheaval from the Israel/Iran situation as precipitating this crash. If our government is fueling this situation as Nouriel Roubini says, I hope it's not being done for political purposes.
One of the fundamental themes of this blog is that man generally has no idea of the immense weaknesses in his nature, in fact we are obsessed with a belief that we call the shots, pull the strings and are masters of our own destiny. The reason that this article caught my interest so was that Roubini was one of the few economists that actually incorporated the world situation into economic prognostications. He even mentioned the potential upheaval from the Israel/Iran situation as precipitating this crash. If our government is fueling this situation as Nouriel Roubini says, I hope it's not being done for political purposes.
