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Sir, Nouriel Roubini yet again offers us a counsel of despair ("The mother of all carry trades faces an inevitable bust", November 2). He alerts us to the dangers of the formation of yet another global asset price bubble without offering the world's central banks concrete policy advice as to what they should now be doing to avert those dangers.

Prof Roubini's comment might have been more helpful had he noted that if central banks are to pursue simultaneously the two objectives of supporting a fragile global economic recovery and of averting a global asset price bubble, they necessarily need to deploy two rather than one policy instrument in pursuit of those goals. Specifically, they need to complement their low interest rate policy aimed at supporting the recovery with measures such as higher margin or capital requirements to reduce the global leverage and liquidity that are fuelling the asset price bubble.

Prof Roubini would also seem to overstate the role that a declining U.S. dollar is playing in the present global asset price bubble. While the dollar carry trade is certainly playing a significant role in the rise of non-U.S. dollar denominated assets, it can hardly explain the rise of asset prices in the U.S. There is no currency advantage to be gained by borrowing in U.S. dollars to fund the purchase of U.S. dollar-denominated assets.

Desmond Lachman is a resident fellow at AEI.