Nouriel Roubini, the once obscure New York University economics professor who two years ago predicted the current global financial crisis, now says leaders of the world's major industrialized economies and developing countries must implement an 'all fronts' approach to avert a financial calamity and a global depression.

"It will take a significant change in leadership of economic policy and very radical, coordinated policy actions among all advanced and emerging-market economies to avoid this economic and financial disaster," Roubini said on his web site, RGE Monitor.

Roubini urged that national policy makers take immediate action to end the crisis, which has dramatically tightened credit conditions worldwide, constraining the ability of corporations to undertake daily operations, which will hurt GDP growth rates in every region.

And, ironically or by coincidence, leaders will have an opportunity to dialogue and implement a common strategy: officials from the International Monetary Fund, World Bank, and Group of Seven (G-7) nations meet in Washington, D.C. this weekend for their previously-scheduled annual meeting.

One of the most intriguing questions amid the stock market's recent slump and the three-year-plus bull run in commodities, especially oil, concerns whether or not investment funds and hedge funds have artificially boosted commodity prices.

One camp argues that hedge/investment funds now have the capacity to "distort" prices beyond what a sector's fundamentals suggest the price should be. Another camp argues that the valuation of "distort" is subjective, and in any case the market will quickly self-correct for the error, when the bubble or trough, ends.

When making arguments before Congress and other groups, the price distortion camp can point to two recent data points to make their case. First: the $23 per barrel rise in the price of oil to $111.80 from about $87 from mid-February 2008 to mid-March 2008. Second: the 14 cent jump in wholesale unleaded gasoline to $2.77 per gallon on April 2, 2008.

Inventory data

Concerning oil, there has been no fundamental change in global oil supply or demand in the past quarter. If anything, demand growth moderated in the period. Further, oil inventories in the world's largest consuming nation, the United States, rose during the period. Still, oil prices rocketed 26% during the period to record highs.

The ever-incisive FT columnist Martin Wolf offers a stark and sober analysis of the United States' current financial and economic predicament, but it's an analysis well-worth reviewing, if one has the time.

A synopsis is provided here, but first, full warning: read the analysis when you're feeling well and in a good mood, not during other times.

The ever-incisive FT columnist and economist Martin Wolf has some good news for investors, who are no doubt weighed down by the cacophony of pessimism permeating the U.S. stock and bond markets these days.

Wolf argues that the U.S. housing recession and accompanying credit market concerns are huge dangers, for the U.S. and for the rest of the world, and a bumpy road is ahead, but the public sector, led by the U.S. Federal Reserve, is now coming to the rescue.

Before offering his likely scenario for a return to economic health, Wolf summarizes a worst-case-scenario from Nouriel Roubini, economics professor at New York University and founder of RGE Monitor. (Fair warning: Roubini's scenario represents the bleakest of the bear views, hence it's best not to read it on a day when the Dow is down 300 points, etc.)

While recognizing that Roubini's scenario is plausible, Wolf argues that it's not likely to occur, at least not to the degree Roubini suggests.

I wrote yesterday about the recent Chinese veiled threat to dump its dollar holdings if the U.S. raises tariffs in hopes of coercing them to let the Yuan rise against the dollar. Today I had the opportunity to pick the brain of an expert on the topic, Brad Setser, Chief Economist at RGE Monitor and former acting director of the Office of International Monetary and Financial Policy at the U.S. Treasury.

My first question to him was, is this a credible threat? Setser didn't believe so, because it would represent a huge shift in China policy. The Chinese government, he explained, has shown a consistent bias toward supporting the country's exports, even at the cost of holding onto dollars as their value drops against other world currency. In fact, China continues to bolster its dollar holdings, adding $350-400 billion this year alone.

Setser went on to explain that, in his opinion, the Yuan was currently undervalued against the dollar by approximately 30%. If such an imbalance were abruptly corrected it would dramatically disrupt their export market.

He went on to say that China is in effect swallowing huge losses by holding dollars in order to support their exports, but the current regime has not indicated any likelihood to change that position.

However, he cautions, tensions between the two countries are growing, as the Chinese government takes umbrage at the growing movement in the U.S. to address the trade imbalance with legislation.

My take from this discussion: a change in the status quo is not in the offing, but the trade discussions in Congress are being watched carefully by the Chinese government. In the political season we are entering, pro-tariff campaign rhetoric could bring about more threats of reprisal.