The Economist:

The most powerful tool, of course, is the interest rate. But central banks are wary of using it to pop bubbles because it risks crushing growth as well. And, with the world economy in its current fragile state, they are rightly unwilling to jack up interest rates now.

But even if governments judge that the risks posed by raising rates now outweighs that of keeping them low, investors still have plenty of reasons to worry. The problem for them is not just that valuations look high by historic standards. It is also that the current combination of high asset prices, low interest rates and massive fiscal deficits is unsustainable.

[…]

Investors tempted to take comfort from the fact that asset prices are still below their peaks would do well to remember that they may yet fall back a very long way. The Japanese stock market still trades at a quarter of the high it reached 20 years ago. The NASDAQ trades at half the level it reached during dotcom mania. Today the prices of many assets are being held up by unsustainable fiscal and monetary stimulus. Something has to give.

I’m all too much of a pessimist already, but I’ve been worrying about this lately.

[Via Jason Fried]

Peter Schiff tried to warn us about not only the real estate crash, but also the subsequent Wallstreet crash and credit crunch. Remember Warren Buffett’s words: “[B]e fearful when others are greedy, and be greedy when others are fearful.”

[Via 37signals]