I guess the many people who are cheering for these 0% interest rates and money printing ways are excited today, but as Tsang suggests the next crisis may be brought on by the fed and its ways to prop up the economy is 100% right. Fed May Cause Next Crisis, Hong Kongâs Tsang Suggests (Update2) By Christopher Anstey and Michael Dwyer Nov. 13 (Bloomberg) -- The Federal Reserveâs policy of keeping interest rates near zero is fueling a wave of speculative capital that may cause the next global crisis, Hong Kongâs leader said. âIâm scared and leaders should look out,â said Donald Tsang, chief executive of the city, said in Singapore today. âAmerica is doing exactly what Japan did last time,â he said, adding that Japanâs zero interest rate policy contributed to the 1997 Asian financial crisis and U.S. mortgage meltdown. Fed Chairman Ben S. Bernanke, a scholar of the Great Depression, has overseen a record injection of liquidity into the worldâs largest economy, pledging not to make the mistake of the 1930s, when officials tightened policy. Tsangâs warning contrasts with pledges by the Group of 20 nations that represent the worldâs biggest economies to keep stimulus measures in place. âWe have a U.S. dollar carry trade at the moment,â Tsang, 65, said in a speech where leaders of the Asia Pacific Economic Cooperation forum are gathering for a weekend summit. The carry trade is where investors borrow cheaply in one currency and use the funds to invest in other currencies. âWhere is the money going -- itâs where the problemâs going to be: Asia,â Tsang said. âYou can see asset prices going up, not only in Korea, in Taiwan, in Singapore and in Hong Kong, going up to levels that are incompatible or inconsistent with the economic fundamentals.â Past Experience Tsang was Hong Kongâs financial secretary during the 1997- 98 Asian crisis, when countries from South Korea to Indonesia were forced to borrow from the International Monetary Fund because of an investor exodus sparked by concerns officials couldnât maintain the value of their currencies. Together with Hong Kong Monetary Authority chief Joseph Yam, he intervened to buy $15 billion of Hong Kong stock, successfully defending the territoryâs exchange-rate peg to the dollar. Hong Kongâs interest rates track those of the U.S. because of the currencyâs peg to the dollar, which means that foreign capital flows into stocks and property. Real estate prices in the city have risen more than 25 percent this year, prompting the International Monetary Fund to warn this month of a possible bubble. Hong Kong Financial Secretary John Tsang said Nov. 4 the government was âvery concernedâ about the rise. Some academics and economists say Asian policy makers should do more to stave off asset bubbles. âSerious Riskâ âAsiaâs bubbles now pose a serious risk to financial stability,â said Barry Eichengreen, professor of economics at the University of California, Berkeley in an article published today on Eurointelligence.com. This is âa task for emerging market central banks, not for the Fed or the European Central Bank.â Tsangâs warning may nevertheless strike a chord elsewhere in Asia, where inflows of capital threaten to create bubbles. World Bank President Robert Zoellick, also in Singapore for APEC, said that while Asian countries do face some risk of asset prices climbing, itâs up to the regionâs officials to act. âGiven liquidity in the international marketplace and given the pace of recovery in East Asia, you could start to see some asset bubbles,â Zoellick said in a Bloomberg Television interview yesterday. âThere will be a need here, unlike you might have in Europe and North Americaâ to look at actions such as Australiaâs rate boost this month, he said. Dollar Holdingss Asian central banks this year have increased holdings of U.S. dollar assets, including Treasuries, to keep their currencies from rising and thus making exports more expensive relative to Chinaâs. While Chinaâs holdings of U.S. Treasuries rose 10 percent this year, Japanâs increased 16 percent and those in the rest of Asia by 25 percent, Bloomberg data show. The U.S. currency has tumbled 14 percent since the beginning of March, according to the Fedâs trade-weighted major currency index. The dollar has been hurt by a global recovery that has reduced investor appetite for the currency as a haven, and by expectations for the Fed to keep its main rate near a record low into 2010. âThere are indications that the U.S. dollar is now serving as the funding currency for carry trades,â the IMF said in a report last week. âThese trades may be contributing to upward pressure on the euro and some emerging-economy currencies.â Fed policy makers last week reiterated their pledge to keep borrowing costs âexceptionally lowâ for an âextended periodâ to aid the U.S. recovery. APEC finance ministers, in a joint statement yesterday, committed to maintain stimulus efforts âuntil a durable recovery in private demand is secured.â Strong Dollar âWe definitely want a strong dollar,â Franceâs Finance Minister Christine Lagarde said in Singapore today. U.S. Treasury Secretary Timothy Geithner reiterated his commitment to a strong dollar policy on a trip to Asia this week. âItâs very important to the United States, to the economic health of the United States, that we maintain a strong dollar,â Geithner told reporters in Tokyo Nov. 11. After meeting with his APEC finance minister counterparts yesterday in Singapore, he said âwe bear a special responsibilityâ because of the U.S. economyâs global role.