March 8 (Bloomberg) -- China will limit the yuan’s appreciation to 4 percent over the next 12 months because of a “super cautious” outlook on the global economy, said New York University Professor Nouriel Roubini.
The central bank may end a 20-month peg to the dollar as soon as the second quarter, allowing a 2 percent one-step gain, and then let the currency strengthen another 1 percent to 2 percent in 12 months, Roubini said in an interview in New York. The yuan rose 21 percent between July 2005 and July 2008, when the government halted its advance to protect exports.
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Speaking at the World Economic Forum’s annual meeting in Davos, Switzerland, after the U.S. reported the fastest growth in six years, their comments underscored concern that that emergency measures to rescue banks and fight the recession may be withdrawn too soon.
“The headline number will look large and big, but actually when you dissect it, it’s very dismal and poor,” Roubini said in a Jan. 30 Bloomberg Television interview following a U.S. Commerce Department report that showed economic expansion of 5.7 percent in the fourth quarter. “I think we are in trouble.”
"Risky asset prices have risen too much, too soon and too fast compared with macroeconomic fundamentals," Nouriel Roubini, professor at New York University's Stern School of Business and chairman of RGE Roubini Global Economics, wrote in an article at the end of last year.
"So what is behind this massive rally? Certainly it has been helped by a wave of liquidity from near-zero interest rates and quantitative easing. But a more important factor fuelling this asset bubble is the weakness of the U.S. dollar, driven by the mother of all carry trades," Roubini explained.
The U.S. dollar has become the major funding currency of carry trades as the Fed has kept interest rates on hold and is expected to do so for a long time, he added. Roubini, one of those few economists who accurately predicted the outbreak of the global financial crisis, has been called Dr. Doom for his consistently pessimistic yet accurate economic and financial observations. Roubini argued that the dollar carry trade, which he called mother of all carry trades, has created what he believed "mother of all highly leveraged global asset bubbles" and those bubbles would inevitably face bust when the borrowing costs of dollar funds start to rise.
Today Nouriel Roubini points a finger at some of the worst offenders:
“Indeed, rating-agency downgrades, a widening of sovereign spreads, and failed public-debt auctions in countries like the United Kingdom, Greece, Ireland, and Spain provided a stark reminder last year that unless advanced economies begin to put their fiscal houses in order, investors, bond-market vigilantes, and rating agencies may turn from friend to foe. The severe recession, combined with the financial crisis during 2008-2009, worsened developed countries’ fiscal positions, owing to stimulus spending, lower tax revenues, and backstopping and ring-fencing of their financial sectors.
New York Daily News:
For the economy to be viable, the financial system must be healthy. For this to occur, the system needs to be cleansed of its poorly performing loans and so-called toxic securities backed by loans. This way, once creditworthy institutions and individuals come to the market looking for capital to borrow, financial firms will be in a position to lend them money.
Secretary Timothy Geithner's new toxic asset plan is a serious step in the right direction in that it creates a public-private partnership to buy the troubled assets of financial firms - in other words, to do the necessary cleansing. Up until now, with all the government bailouts, the financial system has been barely treading water. With this plan, it will still be a hard swim, but, at least, there is a path to shore.
