October, 2010 Archives
by Riaan Nel in Global Economy
“The recent crisis has made it clear that the ‘Great Instability’ may be a better description of the coming era than the ‘Great Moderation.’ Asset bubbles and busts may occur more frequently, and crises once thought to occur only once or twice a century may hammer the global economy far more often. Black swans may become white swans.” This is the opinion of Dr. Nouriel Roubini in his latest book “Crisis Economics – A Crash Course in the Future of Finance.”
We are already participating in the growth of another asset bubble that will explode and devastate investment portfolios and possibly cause another recession. Since March 2009 global risk assets experienced an unprecedented rebound. While this recovery in asset prices from the collapse in 2008 during the financial crisis is partly due to better economic fundamentals, prices have shot up way too fast, and way too soon! The reason for this has been the incredible expansion of the money supply by central banks around the world. We are experiencing what Roubini calls “the mother of all carry trades” causing the mother of all asset bubbles.