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The problems associated with the U.S. Mortgage Finance Bubble having evolved into Corporate Debt, Securities Finance, and Global Credit Bubbles are great. To sustain myriad Bubbles will require massive and uninterrupted Credit growth. Conditions for such an undertaking were actually quite favorable last year. Wall Street was firing on all cylinders, with the housing slowdown fostering expectations for Goldilocks and an imminent easing of Fed policy. But 2006 excesses have created a serious dilemma, one not well recognized. Post-Bubble Subprime and general mortgage Credit risks pose an increasingly recognized problem on one hand, while heightened Bubble excesses in Corporate and Securities Finance are equally risky on the other. Because of heightened inflation risks associated with ongoing domestic and global excesses, and one can envisage a scenario where the Fed remains quite hesitant to provide the easing cycle Wall Street is anxiously positioned for.

Doug Noland is a market strategist at Prudent Bear Funds. Their website is www.prudentbear.com.