Less than five years ago, economic Armageddon appeared at the door. Lehman Brothers failed. Merrill Lynch was sold to Bank of America Corp. (NYSE: BAC) and J.P. Morgan Chase & Co. (NYSE: JPM) was able to steal Bear Stearns for song. Even General Motors Co. (NYSE: GM) had to be bailed out by the U.S. government, and to this day it still owes the American taxpayer more than $30 billion dollars. The question to ask is whether another devastating credit bubble is forming all over again right now.

Switzerland's Bank of International Settlements (BIS) has warned that it is unusual and rare for asset prices to be rising as forecasters are predicting a global economic slowdown. The International Monetary Fund and the Organisation for Economic Co-operation and Development (OECD) have recently downgraded their outlooks for 2012 and 2013, with sharp cuts for much of Europe, as well as for Brazil, China and India.

Fortunately, the U.S. Treasury's purchase of trillions of dollars of debt securities, known as quantitative easing, and the government's trillion dollar Keynesian stimulus spending saved the United States from the economic abyss. Or did it? Despite rising voices of concern from economists around the world, asset prices have risen back to levels not seen since the beginning of the Great Recession.

"Unusually, equity and fixed income gains coincided with a weakening of the global economic outlook. In the past, falling growth forecasts have usually been associated with rising expected default rates and higher bond yields," the bank concluded. It is not just the economic malaise in Europe that concerns the bank, as many S&P 500 companies have lowered their 2013 guidance. Plus, as yields stay mired near zero, there is rising concern that portfolio managers are once again fishing for higher yielding debt instruments to help fund future liabilities, actuarial or otherwise. This is eerily reminiscent of the period between 2006 and 2008.

What has driven this rally? In large part the BIS attributes it to the perception that the European Central Bank (ECB) has taken over a role of lender of last resort. Armed with a never-ending balance sheet, the ECB like the Fed can reduce the risk of the eurozone dissolving and prevent individual countries' sovereign debt defaults. Fortunately, efforts by European banks to strengthen their balance sheets, add capital and lower emerging market debt exposure have helped to improve confidence. They have drastically cut cross-border exposure to sovereign debt in Greece, Italy, Ireland, Portugal and Spain (PIIGS) to just $201 billion from a trillion dollars in early 2010.

Some encouraging news out of China over the weekend indicated that after months of slow growth that has dampened commodities, that a protracted economic downturn will be avoided. The conclusion that can be drawn is that, with world economies struggling against slow growth and in some cases like Japan and areas of Europe recession, another round of overinflated asset prices could lead to another bad ending.

Lee Jackson