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The Granddaddy of All Bubbles Is Here

Wed, Mar 20, 2013 - 4:53pm

Doug Noland, a credit bubble historian and analyst, spoke with Financial Sense Newshour about the global credit bubble now forming, which he calls the "Granddaddy of all bubbles."

Noland warns: "We’ve never had such a synchronized global bubble in sovereign debt markets and equity markets, and we’ve never seen such concerted central bank policies. It’s almost like one global monetary policy, and I would also argue that the global system was much closer to a serious crisis this past summer than most appreciate; then we had the Draghi plan and then Mr. Bernanke with open-ended quantitative easing. So, from my standpoint, we’ve been in desperate policy measures since last summer."

When asked about Cyprus, he said that it was a "dramatic development" with Germans now having to conduct a delicate balancing-act between any further bailouts and domestic backlash. Cyprus may just be a model of things going forward.

Whether a Cyprus-style haircut on deposits could happen in the U.S., Noland says that he sure hopes not but, in a way, U.S. depositors—savers—"are getting a haircut each year with negative real interest rates. The Fed is reflating the economy, inflation is prevalent in the markets now and we as depositors get a zero return."

With regards to our current market he says, "Everyone’s gotten all bullish, the markets have been really strong and now we’re starting to see, perhaps, a little bit of reality come back as we see some cracks out there."

With that said, Doug believes the bubbles are back and likens the period we're in now to the 1990's when hot-money continually flooded back into the U.S. anytime there was a crisis abroad. In comparing now and then, he says "the U.S. economy and markets could outperform and be a magnet in a period of unstable global markets. I don’t think it’s positive because down the road when the markets finally discipline our policymakers, then the dollar would be in trouble; but, in the near term, it could be a magnet again."

When asked how long this current bubble could last for, he said that it's impossible to predict but, if it truly is the "Granddaddy of all bubbles" as he believes it is, "it shouldn’t surprise us if the excesses completely amaze us."

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