Since governments have failed to take advantage of the crisis and build a better financial system, it will become very difficult to push it forward now. The sense of urgency is gone. One may argue that, since markets are stable now, there is no need for radical reforms. This is exactly the wrong conclusion. Trillions of dollars have been spent to buy today's stability. If the money isn't spent in vain, serious reforms should take place to decrease the possibility of a catastrophe like this in the future.

The big change that happened is a rapid increase in the U.S. household savings rate. It happened much more quickly than I expected and has the potential to change the global economy. The economic explanation is negative wealth effect. U.S. household net wealth declined 20 percent, or nearly 100 percent of GDP. The rule of the thumb is that it would lead to a 5 percent reduction in spending. The U.S. household savings rate has increased more than that -- and continues to rise. It could rise above 10 percent next year. Because of rising savings, the U.S. trade deficit has already halved from the peak. It could halve again next year. This is why I have turned positive on the dollar.

Financial markets are still maximum bearish on the dollar. Liquidity is being channeled out of dollar into all other assets. This is why there is such a high correlation between the dollar and other assets. I think this is the most crowded trade in the world. When the dollar reverses, the short squeeze could cause a global crisis.

Because no meaningful financial reforms have occurred, bubble-making rapidly came back in fashion. The drivers are faith in an ever-depreciating dollar and, later, inflation. Stocks, commodities, and even property values in some cities have skyrocketed this year. It is happening amid a synchronous global recession.

Of course, bulls would argue the market recovery is forecasting a strong global economy ahead. I seriously doubt it. With savings and unemployment rising, the OECD bloc is unlikely to stage a strong recovery from the recession. This view is not the market's consensus, which assumes all stimuli will lead to a strong and sustained recovery. As I have argued before, supply and demand become misaligned during a big bubble. When it bursts, the economy must restructure supply and demand before the economy can be fully employed. Government stimulus can't solve the problem. Realignment will take time.

Because policymakers mistakenly think stimulus spending can bring back growth, they are pushing too hard. The eventual consequences are inflation and bubbles along the way. These bubbles will be short-lived. The current boom market is a good example. At the beginning of the year, I predicted such a bubble from March to September. I still hold to this belief. China's stock market peaked in August and the U.S. market is peaking in September. The reason for the shortness of the bubble is its limited impact on real demand.

How long a bubble lasts depends on the size of its multiplier effect on the economy. A large multiplier effect leads to an economic boom that boosts asset returns. Market watchers can make a plausible case that high asset prices reflect a revaluation rather than a bubble. Strong fundamentals and rising asset prices could sustain each other for a period. The dotcom bubble began in 1996 and lasted five years. The global property bubble began in 2002 and lasted five years, too.

A technology bubble can be extended by cutting costs and boosting profits. A property bubble stimulates demand in many parts of demand and can boost corporate earnings, benefiting financial institutions, retailers, construction companies and material suppliers. This large multiplier effect is why a property bubble usually lasts many years.

Only a multiplier effect from the current bubble is stopping financial institutions from going under. However, weighed down by trillions of dollars in non-performing assets, they cannot lend with abandon again, which makes it impossible to revive property bubbles. Besides, American households won't join the "borrow-and-spend" game again. Essentially, the main short-term impact of the current bubble is preventing the financial system from collapsing. It won't lead to substantial demand creation.

Many investors today think a bubble is inevitable and, when it bursts, another can be created quickly to keep on going with life as usual. What has occurred over the past six months seems to validate this viewpoint. History, however, is not kind to this view. Serial bubble making leads to a bigger economic crisis later. What occurred in the United States in the 1930s and Japan over the past two decades are good examples in that regard. If a new bubble were always available for bailouts, we'd have the ultimate free lunch. But there is no free lunch.

Our serial bubble making began 10 years ago with the Asian Financial Crisis. It led to loose monetary policy in developed economies, especially in the United States, and undervalued exchange rates in developing economies. The inflationary force from this loose monetary policy was kept down by excess capacity or capacity creation in developing economies. The environment for tolerating such a loose monetary environment ends when inflation surges in emerging economies first and developed economies second.

When inflation becomes a political problem and policymakers are forced to respond, money supplies will be cut. After that, no more bubbles.