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Andy Xie has been warning about the dire consequences of asset bubbles for most of his career. In his latest broadside, about the consequences of the Federal Reserve's decision to continue quantitative easing, he has raised the volume on his megaphone. The former Morgan Stanley economist reckons the global flow of hot money into government bonds and real estate has reached such a scale that the current asset bubble is greater than the one that unleashed the 2008 financial crisis. When the Fed eventually puts the brake on its money-printing, the bursting bubble will, he argues, bring a worse recession than the one we have just endured.

Dr. Xie's fans reckon he has form, having warned in August 2008 of an impending U.S. financial meltdown and, previously, calling the dot-com boom a financial bubble. In his latest missive, published in Caixin, the Chinese news magazine, he accuses the Fed of fuelling a potential disaster, in its mistaken attempts to create employment at home through monetary stimulus. Instead, the policy has only led to job creation by competitive devaluation.

Americans and Europeans have been cutting their pay in order to save their jobs. Meanwhile, the inflationary effect of money-printing has been exported to emerging markets, such as China, where he reckons property rental yields are now as low as experienced in the Japan at the peak of its real estate bubble. "Hot money earns a profit only if it creates a bubble and leaves a hot potato for others to hold," writes Dr. Xie. Real estate in emerging markets is 100 per cent overvalued, he says and he notes the return of the dot-com bubble with Facebook stock priced at 100 times earnings.

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The bubble is being globalised with hot money flowing back into London and Manhattan. There is ample anecdotal evidence for this from realtors in central London, where property values are soaring and developers are not even bothering to market new riverside apartment blocks in Britain, preferring to launch U.K. projects with events in Hong Kong or Singapore. The Chinese Society for Economic Reform recently estimated that "grey income," the undeclared revenues of China's rising bourgeoisie, had swelled to $1-trillion (U.S.) in 2011, a volcano of boiling cash that is now chasing safe refuges in Europe and North America.

Timing is crucial for investors determined to ride this frightening wave and Dr. Xie admits, in a snipe at Alan Greenspan, the former Fed chairman, that no one can be sure about a bubble until it bursts. However, he dares to suggest the current dotcom market bubble will not end until 2014.

The export of emerging market inflation to America will be the turning point, he thinks, when the Fed will be forced to impose real interest rates. We got a hint of the potential damage when the Fed hinted over the summer that it would taper QE and emerging markets were given a big thump, consisting of money flight, currencies weakening and markets crashing. When the Fed changed its mind, the hot money edged back into the overheated markets and the bubbles resumed their expansion.

The big question is where will this end, after the pricking of the bubble. Dr. Xie, from his watchtower in Shanghai, believes it will be the shift of China's role from surplus labour provider to a land of labour shortage. Its disinflationary role will end and there is no nation that can fill the gap. Inflation in the prices of goods and services will return. Bond yields will soar and the global bubble economy will come to an end.

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