The party’s back on at Wall Street. But before we throw caution to the wind again, let’s check the punch bowl, not for liquor, but for the economic equivalent of poison: funny money created by a highly political central bank.

The stock market soared to new highs even as the Commerce Department reported a 1.8 percent decline in corporate profits for the third quarter. The GDP showed surprising growth, yet banks are tightening lending standards, and all signs point to a coming credit crunch.

How can we explain all this? Something is out of kilter, and investors know it in their hearts, which is why everyone is looking to the Fed to save the day.

Some say we should stop trying to make sense of Wall Street mania and enjoy the ride. Establishment commentators are already chiding those who pulled some money out in the spring and summer. We should have faith in the Dow, and pay no attention to the naysayers.

Others claim we have entered a new era. New technologies and wise monetary policy have combined to give us perpetual growth. Old-fashioned concerns like price/earnings ratios and monetary aggregates no longer matter. The proof is in the pudding of stock prices.

These approaches may provide political advantages to the White House. But they defy reason. The economy has an inherent logic, and when the stock market successfully ignores it, it is wise to look more deeply for the cause. In this case, the root problem is a Fed policy that has become brazenly partisan, serving the cause of the Clinton boom regardless of the long-term consequences.

Oddly, Alan Greenspan used to be a gold standard man. He has warned in print about loose credit, which fuels artificial booms and allows government to expand. But over the last few years particularly, a vast gulf has begun to separate his professed belief in hard money and his practice. He backed the bailout of Mexico, Asia, and Latin America, defended Fed intervention to save a failing hedge fund, and systematically drove down interest rates to keep the boom going.

If Clinton likes to use his war powers to distract the public from his personal scandals, Greenspan prefers a less blustery path to obfuscating reality. He manipulates the credit markets to take stock prices higher, thus postponing a much-needed correction.

Not that all appearances of prosperity are an illusion. Vast improvements in communications technologies have contributed to economic growth. And increased international trade and the opening of formerly socialist economies to foreign investment have encouraged the well-springs of production and prosperity.

But consider the underlying indicators. For the first time since the 1930s, American households have no net savings. Personal bankruptcies are on the rise. Protectionist fever is spreading through corporate America and the antitrust police are beating up our most resourceful companies. Add the sorry state of corporate balance sheets, and we have no solid grounds for optimism.

Despite Greenspan’s 13.6 percent forced reduction in interest rates since September, banks are more cautious about lending, and mortgage rates (which are controlled not by the Fed but by the credit markets) are not in a downward trend. Clearly, we are experiencing the final stages of a printing-press boom, where economic growth is partly fueled by politically driven loose credit.

The boom and bust cycle does not consist of swings of joy and pathos, like teenage romance. It is a direct result of poor monetary management, as central bankers send bad signals to the investment sector. Greenspan’s Fed is busy doing the White House’s bidding, and the recovered stock market is the surest indication.

Like the Clinton presidency itself, the motive is just to get by, from one day to the next, with no thought to the long-term. But at some point the Fed will have to choose between permitting the correction to occur, and bringing about a dramatic return to inflation. Greenspan must be hoping that when that day arrives, he will be in a position, like Clinton, to slough off the blame on someone else.

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