Roubini: 'We're in Beginning of Credit Bubble'

Friday, 09 May 2014 09:55 AM

By Dan Weil

  Comment  |
   Contact  |
  Print  
|  A   A  
  Copy Shortlink
The debt market is showing signs of overheating, including the heavy issuance of junk bonds and bonds without strong protections for investors, says renowned economist Nouriel Roubini of New York University.

"All the risky things that were happening back in '06 and '07 are back again to the same level, if not more," he tells Fox Business Network.

"So we are in the beginning of a credit bubble, but just the beginning. A year or two from now, with the policy rate still barely above zero, the risk is that it becomes a full-fledged bubble."

Editor’s Note:
Retire 10 Years Earlier With These 4 Stocks


Roubini predicts that the Fed will start raising interest rates in the middle of next year and that it will boost the federal funds rate to 4 percent by the end of 2018 from zero to 0.25 percent now.

The 10-year Treasury yield will rise to 4.25 percent at that point from 2.6 percent now, he suggests.

"The economic recovery is so anemic that a very slow exit [by the Fed] from [its] zero policy rate is justified," Roubini argues. But, "the extra liquidity has gone into asset inflation. . . . Asset inflation can become frothiness, which can lead to bubble."

There may not be a bubble in stocks now. "But if we're going to exit so slowly, then what's the risk of a bubble one year from now, two years from now?"

The Fed has a dilemma, he maintains. "If you exit [from easing] too soon, you get a bond market crash and kill the economy. If you exit too late, you create a financial bubble. That's the biggest challenge for the Fed in the next three to four years."

Esteemed Fed scholar Allan Meltzer of Carnegie Mellon University is concerned that the Fed's massive stimulus program, which has sent its balance sheet soaring above $4 trillion, is laying the groundwork for serious inflation.

"The U.S. Department of Agriculture forecasts that food prices will rise as much as 3.5 percent this year, the biggest annual increase in three years. Over the past 12 months through March, the consumer-price index (CPI) increased 1.5 percent," he writes in The Wall Street Journal.

"These are warnings. Never in history has a country that financed big budget deficits with large amounts of central-bank money avoided inflation. Yet the U.S. has been printing money — and in a reckless fashion — for years."

Editor’s Note: Retire 10 Years Earlier With These 4 Stocks

Related Stories:

© 2014 Moneynews. All rights reserved.

  Comment  |
   Contact  |
  Print  
  Copy Shortlink
Around the Web
Join the Newsmax Community
Please review Community Guidelines before posting a comment.
>> Register to share your comments with the community.
>> Login if you are already a member.
blog comments powered by Disqus
 
Email:
Country
Zip Code:
Privacy: We never share your email.
 
Hot Topics
Follow Newsmax
Like us
on Facebook
Follow us
on Twitter
Add us
on Google Plus
Around the Web
Top Stories
You May Also Like

Fruit of the Boom: 'Underwear Indicator' Hints Recovery Isn't Brief

Wednesday, 26 Nov 2014 13:09 PM

The "underwear indicator" might be signaling strength for the economy. . . .

El-Erian: 'When You Have Very Sharp Moves in Currency, Something Breaks'

Wednesday, 26 Nov 2014 11:53 AM

The dollar's upward surge may cause problems for stocks, says Mohamed El-Erian, chief economic adviser for Allianz. . . .

Falcone Steps Down From Harbinger as Leucadia Raises Stake

Wednesday, 26 Nov 2014 10:29 AM

Philip Falcone is stepping down as chairman and chief executive officer of Harbinger Group Inc., the public holding comp . . .

Most Commented

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

 
NEWSMAX.COM
America's News Page
©  Newsmax Media, Inc.
All Rights Reserved