Roubini: Fed Risking Sequel to 2008 Financial Crisis

“The Federal Reserve’s commitment to loose monetary policy is likely to lead to asset and equity bubbles in the next two years which could be worse than the previous crisis, renowned economist Nouriel Roubini said in an opinion piece for Project Syndicate.

Roubini, co-founder and chairman of Roubini Global Economics famously dubbed Dr Doom for his accurate prediction of the 2008 financial crisis, wrote earlier this week that “the problem is that the Fed’s liquidity injections are not creating credit for the real economy, but rather boosting leverage and risk-taking in financial markets.”

“The issuance of risky junk bonds under loose covenants and with excessively low interest rates is increasing; the stock market is reaching new highs, despite the growth slowdown; and money is flowing to high-yielding emerging markets,” he added.

According to Roubini, a slow exit from the Fed’s quantitative easing (QE) policy would be similar to 2004, when the central bank began to slowly raise rates. Between June 2004 and December 2007, the Fed raised rates in 25 basis point increments. The gradual rate hikes were blamed for keeping monetary policy accommodative for too long and worsening the housing bubble….”

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