New York University economist Nouriel Roubini is warning that the mixture of macro liquidity and market illiquidity is setting us up for a “ticking time bomb.”
Roubini recently wrote on Project Syndicate that the central banks have generated vast sums of liquidity in financial systems across developed countries since the economic collapse, but the liquidity in their financial markets has diminished. This, says Roubini, spells trouble and immense implications for the global economy.
He alluded to the fact that interest rates have been near zero since the Great Recession and the money supply in many advanced countries has grown, which has also increased asset prices. During the last few years, the Federal Reserve has expanded its balance sheet to as much as $4.5 trillion, which has also helped seep freshly created money to the affluent and well-connected.
The economist suggests that investors should be concerned, citing the flash crashes for stocks in May 2010 and for Treasurys in Oct. 2014.
“This combination of macro liquidity and market illiquidity is a time bomb,” he stated.
“The longer central banks create liquidity to suppress short-run volatility, the more they will feed price bubbles in equity, bond and other asset markets. As more investors pile into overvalued, increasingly illiquid assets, the risk of a long-term crash increases,” Roubini added. “Macro liquidity is feeding booms and bubbles; but market illiquidity will eventually trigger a bust and collapse.”
Many feel that a certain economic event will transpire in the coming years because of the Fed’s massive money creation and manipulation. Although the United States central bank has honed in on unemployment and inflation, its third bubble in this century may pose risk to the financial stability of the country.
they think were going to crash and burn well that is coming by next year and i thank that it will start ww3.