The next big bubble?

Are we doomed to the concept of bubbles? To this idea that kids play ball in the living room until something breaks? This is the idea behind bubbles: people get greedy and stop only when they have no choice. As the bubble expands, so does hubris and cockiness, until the whole thing inevitably blows up. Business prophet Nouriel Roubini thinks we're heading for another big one, as Robert Samuelson reports here.

WASHINGTON -- When Nouriel Roubini talks, the world listens. Roubini is, of course, the once-obscure New York University economist whose dire warnings about a financial crisis proved depressingly prophetic. Last week, Roubini was shouting. Writing in The Financial Times, he warned that the Federal Reserve and other government central banks are fueling a massive new asset "bubble" that -- while not in imminent danger of bursting -- will someday do so with calamitous consequences.
Here's Roubini's argument. The Fed is holding short-term interest rates near zero. Investors and speculators borrow dollars cheaply and use them to buy various assets -- stocks, bonds, gold, oil, minerals, foreign currencies. Prices rise. Huge profits can be made.
But this can't last, Roubini warns. The Fed will eventually raise interest rates. Or outside events (a confrontation with Iran, fear of a double-dip recession) will change market psychology. Then, investors will rush to lock in profits, and the sell-off will trigger a crash. Stock, bond and commodity prices will plunge. Losses will mount, confidence will fall and the real economy will suffer.