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In the case of traditional lending, finance will expand at a rate to satisfy the demand for funds for real economic endeavors (i.e. business capital investment). And despite some rather outrageous lending excesses, even the expansion of mortgage finance was limited to a degree by the capacity of households to borrow.

Today is different. The prevailing demand for borrowing emanates from securities markets activities – specifically for M&A and leveraged securities speculation. In both cases, "the sky’s the limit." As such, we’re in a period of extraordinary capacity for finance to mount a powerful burst of expansion - which it has been doing. The Credit infrastructure has developed incredible capabilities over the past few years; Wall Street and the global leveraged speculating community have become enormously big and powerful; foreign central bank "recycling" of dollar liquidity has evolved into one of history’s most remarkable (and dangerous) Monetary Processes; and Wall Street has begun to position for the next easing cycle with tens of trillions of securities available for such an endeavor.

The monetary backdrop has clearly become extremely unstable – I’ll refer to it as an "Unchecked Liquidity Dislocation." The question then becomes, can monetary affairs settle down to a less unwieldy posture? Or are we instead now firmly locked in a Minsky Ponzi "deviation amplifying system" - that at some unpredictable time and in some unpredictable fashion comes to a predictably devastating conclusion?

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