'The number of additional firming steps required probably would not be large.' Alan Greenspan US Federal Reserve chairman AND AWAY TO the races went Asian stock markets. St Alan seems to have proclaimed that a period of rapidly rising US interest rates is almost at an end. For a central banker, this is regarded as tantamount to pulling the trigger on the starter's gun. I have only one difficulty with treating it as the end of a period of rapidly rising interest rates. I cannot find that period of rapidly rising interest rates. OK, that is putting it too strongly. Short-term US interest rates have indeed risen since early 2004, but from an all-time record low that certainly never set a benchmark for where we could expect them to be in the longer term. Even now they are at low levels rarely seen over the last 40 years. But, bar Hong Kong, few Asian countries have seen short-term interest rates in their local currencies rise anywhere near as much as short-term US dollar rates have. And longer-term rates everywhere, including in Hong Kong, have risen little or not at all during the period. The first chart gives you a perspective on this over the last five years. My apologies if it seems a little cluttered but these three lines need to be set next to each other. The red line, which dips way down starting in early 2001 and then rises up again from early 2004, represents the three-month US dollar London interbank offered rate (Libor). There you have that rise in short-term rates. Now look at the blue line above it. This represents a weighted average of short-term Asian rates, excluding those of Japan and Indonesia. I have excluded Japan because it marches to its own drummer with short-term rates that have remained static at little more than 0.1 per cent for the last five years. Indonesia is out because it skews the sample the other way with its latest monetary mess. But it is quite obvious that the average of all the others shows no big lift at all over the last two years. Only in Thailand and Hong Kong have short- term rates matched the US trend. Why, then, the general Asian hoopla about short-term rates rising no longer? They have hardly risen in the first place. Finally, the green line. It shows you the running yield on US 10-year treasuries. I call that a flat interest rate. In fact, I think it may have been a little disingenuous on Mr Greenspan's part to give the impression that US interest rates continue to be tightly controlled by the Fed in line with sound monetary policy. He may like them to be and I have no doubt that his monetary considerations are sound but what is likely at this point to put the brakes on that steady increase in three-month Libor is that this rate now exceeds the 10-year treasury rate. This has happened in the past but never for long. It is now market forces that are exerting pressure on short-term rates. In fact, Mr Greenspan has himself declared puzzlement at the way long-term rates have remained so steady for so long. He runs the short-term side of the picture. For the long-term side his armoury consists of little more than hope. It raises the question of whether standard monetary control tools are becoming weaker in an environment in which the nature of money flows and transactions are still evolving rapidly. Mr Greenspan's hesitance to make firm statements are perhaps becoming more justified and not just standard central banker talk. It is possible that this starter's gun may have become subject to misfire. And now to the second chart. The US current account deficit now exceeds 6 per cent of GDP and shows no signs of bottoming out. Yes, it can be sustained with little impact on interest rates if foreigners continue to pour money at an already enormous and ever increasing rate into investments in the US. But this is a very big if. It certainly is not an environment in which anyone can have confidence that the US monetary picture is back in balance and that US interest rates will be stable at present levels for an extended period.