Are we heading for Crash II?

"It's dj vu all over again," says Ron Coby on Minyanville.com. In late 2007, as the credit bubble peaked, markets looked pretty much as they do now: the dollar was on the slide, oil hit a high for the year and emerging markets were rocketing. And then, as now, the patterns in markets largely boiled down to cheap money.

This time round, money has been very cheap indeed, thanks to rock-bottom interest rates and quantitative easing (printed money). Central bankers' cash has been "frantically seeking a home" because most banks don't want to lend, says Gillian Tett in the FT. So virtually all risky assets are rallying. The rebounds in some debt and derivative markets have been nothing short of "stunning".

The recovery in global risk appetite, and all the money printing by the Federal Reserve, have led to a falling dollar. But as emerging currencies rise against the greenback, "the prices of too many financial assets" in emerging markets are "bubbling", says Ian Campbell on Breakingviews. Equities in Peru and Indonesia have risen by 139% and 112% this year. A stronger currency draws yet more investment into financial markets and makes exports less competitive. It doesn't help that China's currency the yuan is tied to the dollar, meaning China maintains its competitiveness.

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Brazil even felt forced to impose capital controls last week after its stockmarket had surged and the real had gained 36% against the dollar this year. Brazil could have tried to "calm things down" with higher interest rates, but that would have attracted yet more capital.

The upshot of all this is that "the global economy's distortions deflated developed economies, robust emerging ones and super-inflated assets almost everywhere risk getting worse", says Campbell. The danger is "another round of intense financial instability".

It also bodes ill that in just six months the mood in some quarters has swung from fear to "euphoria", says Tett. She cites an email from a retired banker close to the markets saying that traders are being as reckless as ever. "Any sense of control is being chucked out of the window. [Was last year] just a dress rehearsal for the crash when this bubble bursts?"