Financial bubbles, like wars, used to be rather localized. They were caused by certain specific events and circumstances. France went to war with England several times, for the French throne as well as for reasons we can't recall…the emperor of Paraguay went to war with Brazil and Argentina in the mid-19th century, egged on by his Irish mistress…at about the same time, America went to war with itself.

Likewise, certain specific conditions would cause a sharp run up in, say, the Kuwait stock market…or the price of tin. Then, when the conditions changed, the bubble would pop and investors would wonder how they could be so foolish.

The 20th century saw the first of the World Wars - I and II - when fighting ranged all over the globe. In WWI, England and Germany battled it out in Africa…and the Middle East…and in Eastern Europe, as well as the part of the war that we know best - the Western Front. Then, again, in WWII, the bullets flew practically everywhere. Italian troops invaded Greece. Future U.S. president John F. Kennedy washed up on the coast of Australia. American bombers leveled cities in Japan. Russian tanks ran down German civilians in Prussia.

The 21st century, meanwhile, is witnessing the first truly global financial bubble. The world has gone mad again, but not in the same old way. This time, not everything is affected. And not everyone is touched to the same degree. But all over the planet, markets are bubbling up. All over the globe, people sit in them and sip champagne as if they were hot tubs in Santa Fe.

We pause for further proof (if any were needed), that we here at The Daily Reckoning are not only mortal, but very occasionally prone to error. When the tech bubble crashed in 2000-2002, we presumed U.S. markets would continue to follow the Japanese example…into a long, slow slump. We even wrote a book on it, with Addison Wiggin - Financial Reckoning Day. Well, the book was a NY TIMES bestseller, as we say every chance we get, but it is easier to sell a book than it is to predict the future. It's been five years and the financial reckoning day still hasn't come. Should we hang our heads and admit we were wrong? Maybe we will just hang our heads.

What happened was that the Feds came to the rescue with so much new money and credit that the world's speculators couldn't go broke. Instead, they were forced to get rich. Who would have thought that you could sell a commercial building in London at a cap rate below 4%? But some lunkheads in Spain bought the HSBC building at that price. Who would have thought that you could sell one of Andy Warhol's oeuvres for more than $1 million? Yet, one sold recently for $71 million. Who would have thought that people would line up to buy Chinese stocks at 40 times earnings…or Iraqi bonds at just a few points over U.S. Treasuries?

To make a long story short, the titanic stimulus given by the U.S. economy has had a worldwide effect. The American - along with many of his cousins in the rest of the English-speaking world - went on a spending spree. Dollars flowed out of the United States…and into foreign countries, where central banks "sopped them up" by printing more of their own currencies. No nation wanted its own money to go down faster than the U.S. brand, because it would put them at a commercial disadvantage. Result - a huge competition to inflate paper currencies.

Financial whiz kids found that they could borrow money very cheaply - Japan and Switzerland lent at rates near 1%. Speculators took the money and proceeded to do to world capital markets approximately what American homeowners did to the U.S. housing market - take a good thing too far. With so much money around, it was hard to make a bad investment. No matter how much you overpaid, someone would come along behind you and pay even more.

The "easiest credit conditions in a generation," as Tim Bond explains it in yesterday's Financial Times, have become a kind of financial "little blue pill" getting everyone hot and bothered. Borrowing money has never been easier. As a result, everything is going up, even old, tired investments that no one thought would ever rise again. Excited investors have forsaken their own homebound treasuries in favor of more exotic…and more risky…fare. When you're eating so many financial oysters, there's hardly an investment target in the world that doesn't seem fair and fetching. Frisky speculators are chasing after sultry Venezuelan bonds, although Hugo Chavez is supposed to be an admirer of Trotsky…and diving into bed with Chinese stocks, just when China's communist rulers are desperately trying to knock down stock prices!

And now they've all come to believe that these ultra-low borrowing rates are eternal. Like the American home speculators - who've bet their solvency on ever rising house prices - professional money managers are making multi-billion dollar gambles based on the fantasy that today's cozy credit rates will last forever…or, at least until a greater fool shows up.

Meanwhile, earlier this week, the European Central bank raised rates over 4% - for the first time in six years. The German bund shot through the 4.5% level, the highest since 2002. Japanese two-year bonds rose over 1% for the first time in more than a year. New Zealand hiked its rates to an extraordinary 8%. And the U.S. 10-Treasuries edged up to the 5% level…the highest in 10 months.

What will happen next, we don't know. We are mortal, remember, and maybe even more mortal than most.

Maybe this tide of liquidity, worldwide, has some more flow in it. Maybe Richard Russell and Jeremy Grantham are right - the grand tsunami finale is still ahead. Or, maybe the tide has already turned.

Yesterday, the Dow went down nearly 200 points. All 30 Dow stocks fell. The index has gone down more than 400 points in the last three days. Morgan Stanley issued a "sell" signal to its customers. And U.S. household borrowing dipped to a nine-year low; now that the air has gone out of the housing bubble, the poor householder has nothing to borrow against.

So maybe we weren't entirely wrong about the coming Japan-like slump. Maybe we were just early. We will keep our Crash Alert flag up…just in case.

Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.