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Simply Politics (RB:GOV)
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03 Nov 2009, 09:53 AM EST Rating: 
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Msg. 2012774 of 2024235
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Roubini warned that the dollar has become the "mother of all carry trades" and that it faces "an inevitable bust" that will cause asset prices to plummet in what will amount to a global stock market crash of historic proportions.
But the carry trade cannot last forever, Roubini warned. He said at some point the Federal Reserve no longer will be able to continue buying U.S. Treasuries and other federal agency debt securities in order to keep interest rates depressed. WND reported that on March 25 the Federal Reserve began to buy longer-term U.S. Treasury securities and debt issued by other federal agencies to depress interest rates in an environment where the U.S. Treasury was entering the market to fund what ended up being a $1.4 trillion federal budget deficit for fiscal year 2009. On March 24, a Federal Reserve Bank of New York press release specified that the Federal Open Market Trading Desk within the Fed would purchase $1 trillion of government and quasi-government debt, including up to $300 billion of longer-term U.S. Treasury securities, in what amounted to a government-subsidized purchase of U.S. government debt. The announced Fed purchases also included $750 billion of Freddie Mac and Fannie Mae debt and up to $100 billion of debt issued by various other government agencies. To many Americans, the move appeared equivalent to a retail consumer in debt using a MasterCard to pay the Visa bill. "But one day this bubble will burst, leading to the biggest coordinate asset bust ever," Roubini wrote. "A stampede will occur as closing long leveraged risky asset positions across all asset classes funded by dollar shorts triggers a coordinated collapse of all those risky asset – equities, commodities, emerging market asset classes and credit instruments." "This unraveling may not occur for a while, as easy money and excessive global liquidity can push asset prices higher for a while," he warned. "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." - - - - - View Replies » |
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