Largely this will reveal itself in current account deficits and asset price booms. Left unchecked, the era of low interest rates will also fuel personal debt accumulation that is "unsynced and untied" to the real productivity and real wealth of the borrowers - its just leveraged "gains and exposure" owing to the era of low interest rates. 
 

The dangerous part of all this is that you do not see the bubbles that are created at one end as we are too focused on the starting crisis (subprime, QE, tapering) - many still do not see the correlation.

So where are the bubbles, we need to know where the bubbles are because once interest rates rise, they will prick the bubbles ... of course interest rates will rise based on two things: no more QE and more robust economic recovery/activity/lending in developed countries.

The following are my ratings on potential bubbles. 5 being fair value, 7 being speculative, 9 being over speculation, 10 being so dangerous its a matter of months before the bubble is pricked.

                                             3 Months Ago        Now
Developed markets equities              6.5                7.5
Emerging markets equity                  8                    8
Developed markets REITs                 7                    7
Emerging markets REITs                   8                    8
Developed markets bonds                 6                    5
Emerging markets bonds                   7.5                 7.5
Commodities                                   4.5                 5
Developed markets housing               5.5                 5.5
Emerging markets housing                8.5                  9

The biggest culprit would be large scale government linked borrowings. Large scale infra projects that are started too early, that does not tie in with demand, ego-linked projects ... when interest rates rise, and the vision and execution do not pan out, you will find governments and banks with these exposure taking huge hits.

If you look at the picture above, some countries are already grappling with the high level of personal debt and struggling. NPLs are rising steadily every month, no kidding, in Brazil, China, Turkey and India (just to cite a few). It will get a lot worse ... Other better performing countries (rest of Asia) are buying time only.
 

The Worst Defences For Property Market

a) Its QE's Fault - Well, yes ... but all you have to really care are low/high interest rates, affordability, real occupancy vs real yield



b) Material prices keeps going up - That is a most naive defence ... WHAT THINGS in life do not have an upward price expectation??? If that is your defence then the world WOULD NEVER EVER FOREVER have any property correction .... but they still do!!! Why? Because cost of land and material are never the guiding light for speculative behaviour and their correction. Its (a), jobs and confidence.

c) Malaysia still cheap compared to the regional neighbours - Another ass-whacked job defence. You take that line, you would stayed very invest in MYR assets compared to say SGD assets for the last 10, 20, 30 years ... and you would have lost a lot of money (opportunity cost) taking that line of defence. Regional prices do not balance each other out. Asset prices are a reflection of the ability of its people to make money, the kind of businesses, margins that their goods and services can command, affordability ratios, whether an economy is moving up the value chain ... 



By Eduardo Olaberría, Economist, OECD Economics Department
Read more at http://www.nakedcapitalism.com/2013/12/capital-inflows-and-booms-in-asset-prices.html#zGdVvrVQfgwoU2Ei.99

For decades, policymakers’ perception has been that large capital inflows can fuel booms in asset prices. If this were true, bonanzas in capital inflows would imply an important risk to financial stability, since booms in asset prices are leading indicators of financial crises. However, as noted by Reinhart and Reinhart (2008: 50), despite being widespread among policymakers, until recently this perception was based mainly on anecdotal evidence.

Recently, a number of empirical studies (e.g. Aizenman and Jinjarak 2009 and Ferrero 2011, 2012) have studied the association between large capital inflows and asset prices – in particular housing prices. Focusing on the current account as a proxy for capital inflows, they found that the association is, indeed, positive and significant. These findings are clearly a step forward. However, focusing only on the current account can be misleading. In recent research (Olaberría 2012 and Jara and Olaberría 2013), we present strong evidence emphasising that to understand the association between large capital inflows and booms in asset prices, we need to go beyond the current account and look at the disaggregated flows. We argue that these facts are consistent with theory, and highlight why they matter for economic policy.

Asset Price Booms and the Composition of Capital Inflows

Using a panel of quarterly data for 35 countries covering the period 1990–2010, in Jara and Olaberría (2013) we estimate the unconditional probability of observing a boom in housing prices, and the probability of observing a boom in housing prices conditional on having:

1. large current-account deficits;
2. a bonanza in net FDI inflows;
3. a bonanza in net portfolio equity inflows;
4. a bonanza in net portfolio debt inflows;
5. a bonanza in net banks and other inflows;
6. a bonanza in 4 and 5.

Bonanzas are defined as episodes of extreme net capital inflows – when domestic or foreign investors substantially increase capital inflows into a country relative to their historic levels (see Forbes and Warnock 2012). Asset-price booms are defined as periods of unusually large price expansions (a method used in Mendoza and Terrones 2008 to identify credit booms).

The main results, reported in Figure 1, show that having a large current-account deficit does indeed increase the probability of observing a boom in housing prices, but that the increase is not very significant (17.7% vs. 15.4%). In contrast, the figure shows that the probability of observing a boom in housing prices more than doubles (increases to almost 40%) during periods of bonanzas in debt-related inflows. (Olaberría 2012 found similar results for booms in stock prices.)


These findings are consistent with theory. Theoretical models linking booms in asset prices with large capital inflows start with the idea that, because of financial market imperfections – such as adverse selection and moral hazard – an economy’s borrowing capability is limited by the value of its assets. When large capital inflows enter an economy, the demand for assets that are in rather fixed supply increases, and asset prices rise, increasing the economy’s credit limit. Increases in the credit limit promote new rounds of capital inflows, potentially evolving into an asset price boom through a circular process in which higher asset prices make the financial conditions of the economy appear sounder than they actually are, promoting more borrowing and pushing asset prices even higher.

According to Aoki et al. (2009), this theory applies mainly to debt-related flows – which are more likely to suffer from problems of adverse selection and moral hazard, and can exacerbate cycles in asset prices by encouraging excessive risky lending during booms – and not necessarily to equity-related inflows. In fact, according to Krugman (2000), equity-related inflows – i.e. FDI – could help flatten cycles in asset prices.

In sum, the composition of capital inflows matters. While large current account deficits driven by FDI inflows are less likely to be linked with booms, large inflows of debt-related investment are likely to put pressure on asset prices – even when the current account is in surplus. (Although countries with current-account surpluses are better equipped to respond to the risk than countries with large current-account deficits.)