Have just enough time before my first class to pass along Nouriel Roubini's dire warning to the Fed:

What is fueling the massive asset price rally across the board? "One important factor is the weakness of the US dollar, driven by the mother of all carry trades. Traders are borrowing at negative 20% rates to invest on a highly leveraged basis on a mass of risky global assets that are rising in price due to excess liquidity and a massive carry trade." What makes the carry trade unravel? First, the dollar cannot go to zero and at some point the cost of borrowing in dollars stabilizes. Second, the Fed cannot suppress volatility forever. Third, the Fed may tighten sooner than expected. Fourth, political risk may spark flight to safety. "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." [Emphasis added by LeRoy.] From The Financial Times.

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