Bubble in bubbles means it's time to close monetary bar

The MSCI Asia Pacific Index has climbed 70 percent from a five-year low on March 9 as government stimulus measures and low rates filter through economies. Near-zero borrowing costs in the U.S. and Japan are having an impact globally. All the liquidity they are creating has stock markets rising faster than economic fundamentals are improving.

It's true that the dire predictions of a year ago didn't pan out. China, India and Asia in general have held their ground better than many expected. That hardly seems enough for equities to be surging like it's 1996, the year before the Asian financial crisis.

The stock party is a global phenomenon, of course. The Dow Jones Industrial Average and the Nikkei 225 Stock Average recently reached 10,000 for the first time in more than a year. That's even though the two biggest economies are in recession and have poor employment outlooks.

It seems like the globe is experiencing a bubble in bubbles. Look no further than gold trading at more than US$1,000 an ounce; 10-year Treasury yields of less than 3.5 percent as the U.S. amasses an unprecedented debt load; or the likelihood the yen will soon be worth more than 90 to the dollar.

With things seeming out of whack, it's refreshing to find the occasional burst of sobriety. Take Glenn Stevens, governor of the Reserve Bank of Australia. He is spurning former Fed Chairman Alan Greenspan's approach to interest rates in a bid to restrain runaway housing prices that could imperil the economy.

Australia's economy is smaller and far more developed than China's or India's. Still, there's something to be said of a central bank that understands the risks of ever-surging asset values. Maybe if the U.S. had done that, its US$14 trillion economy wouldn't have crashed and infected the world.

There was a time when a central banker's job was to take away the punchbowl just as the party got going. Now, Marc Faber, publisher of the Gloom, Boom & Doom report in Hong Kong, rarely misses a chance to blast the Fed for acting more “like a bartender” liquoring up markets than a monetary authority working to calm them. And he's absolutely right.

Happy hour is lasting a bit too long for comfort. If stocks are rallying because of economic fundamentals, then so be it. If they are rallying because of easy-money policies, then Asia's stability is more fiction than fact. It's time for monetary bartenders to start declaring closing time.

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