The stock and bond markets can rise for another two years, as the Federal Reserve maintains its massive easing program, says New York University economist Nouriel Roubini.
But then the trouble begins. The Fed’s accommodative policy is sparking the same problems that led to the financial crisis in 2008, he said at the Milken Institute Global Conference in Los Angeles Monday, CNNMoney reports.
Roubini is referring to excessive speculation in financial and housing markets. He mentioned junk bonds in particular.
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The Fed is “creating massive fraud,” Roubini said. While “in the short term it’s great for assets, … at some point there's a levitational problem."
The current slowdown in global economic growth should be pushing stocks, commodities and bond yields lower, he noted.
When things do come back down to earth, the economy will suffer a depression, rather than a recession, Roubini maintained.
In the meantime, Europe’s debt crisis and economic stagnation stand as the biggest threat to continued gains by stocks, he explained.
The Fed’s easing also is destabilizing the housing market, said Edward Pinto, who was the chief credit officer at Fannie Mae from 1987 to 1989.
"While a housing recovery of sorts has developed, it is by no means a normal one," he wrote in The Wall Street Journal. The rebound is "eerily familiar to the previous government policy-induced boom that went bust in 2006, and from which the country is still struggling to recover."
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