Roubini Warns of New Financial Crisis

(MoneyWatch)  Nouriel Roubini, the New York University economist who called the 2007 banking crisis with scary precision, thinks another financial bubble is forming.

This one is being fueled by investors borrowing U.S. dollars to stock up on emerging market equities and commodities. That amounts to "the mother of all carry trades," he said today at a conference in South Africa, alluding to the practice of borrowing at lower interest rates to buy currencies or other assets at a higher rate.

Trouble is, the value of the greenback is dropping, amid a sharp rise in the currencies of developing nations. That trend is likely to continue as the Federal Reserve starts to raise interest rates and eventually weans the financial sector off government aid. In turn, investors could be forced to bail out of the dollar.

Everybody's playing the same game and this game is becoming dangerous. . . . The risk is that we are planting the seeds of the next financial crisis. This asset bubble is totally inconsistent with a weaker recovery of economic and financial fundamentals.

Roubini said this latest bubble may inflate for another couple years before popping, as dollars continue to flood into emerging markets.

Anyone up for some bullion?