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Alan Greenspan and others’ efforts to blame the current global currency regime ("pegged" Asian currencies, in particular) for mounting imbalances recalls analysis that pinned late-‘20s instabilities and the depth of the Depression on the vagaries and then breakdown of the global gold standard. Again, the focus must be first and foremost on underlying Credit systems and monetary conditions. Greenspan, of course, is keen to point fingers at foreign governments and their "pegged" currencies, when the impetus for the Great Credit Bubble can be traced back to "pegged" U.S. interest-rates, in conjunction with Fed assurances of abundant marketplace liquidity and a persistent inflationary bias. Such an unparalleled financial backdrop beckoned for reckless excess.

No currency system or monetary apparatus can be expected to function stably in the face of rampant underlying Credit expansion and resulting cumulative speculative financial flows. The Twenties’ financial profligacy doomed the gold standard, and it is simply inconceivable how a stable global currency regime could today be maintained in the face of the unprecedented dollar-based Credit inflation and the ensuing massive pool of global speculative finance.

The 1920s/’30s gold standard debate is lost in time. But great effort must be made to ensure that underlying Credit systems and speculative dynamics (the U.S.’s in particular), along with resulting U.S. and global economic maladjustments - are the focal point with respect to the analysis of any future systemic dislocation - and not the global currency system, as hopelessly flawed as it is. Ballooning foreign central bank reserve holdings are not THE global imbalance, but are instead indicative of deep underlying Credit system and economic maladjustment. Ditto the unknown Trillions of assets being accumulated by the global leveraged speculating community.

There will be more than ample blame to spread around when this historic boom gives way to bust. Learning the correct lessons from this experience will demand the acceptance of responsibility for our own financial and economic misdeeds, of which there have been many. The "Holy Grail" of macro-economic understanding is an unattainable goal, yet we are presented with an exciting opportunity to get economic analysis and theory at least back on the right track. The first step will require the recognition and acceptance that unrestrained Credit and unchecked leveraged speculation are inconsistent with the stability of Capitalistic systems.

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