Morgan Stanley Asia chairman emeritus Stephen Roach says the low rates that prevailed from 2003 to 2006 "set the stage for the property bubble."

“We kept rates so low for so long, you know, over the 2003 to the 2006 period, that set the stage for the property bubble, the credit bubble, the excess liquidity bubble that resulted in unmitigated disaster,” Roach tells CNBC.

“The Fed to this day is in denial over the role that monetary policy played in creating this monster crisis,” says Roach. “I would hope the Fed chairman wouldn’t become under the spell of feeling like he’s the guy behind the curtain in 'The Wizard of Oz.'”

Ben Bernanke (Getty photo)

Federal Reserve Chairman Ben Bernanke is telling us the emergency is over, notes Roach, but is leaving policy at its emergency settings despite legitimate post crisis healing.

“We’re on steroids now,” Roach says.

“There’s not a lot we can do about exogenous factors, but we certainly can be encouraging consumers and financial institutions to move aggressively in repairing balance sheets, urging our policymakers … to deal with some of these expenses” to shore up the system against future problems,” says Roach.

“Otherwise, we’re going to get in the same mess we got into post the fall of 2008, a crisis of recession but no ammo to deal with it.”

PR Newswire reports that the National Inflation Association says that if the Federal Reserve doesn't implement QE3, the organization believes ”it will just about guarantee a bursting of the U.S. bond bubble in the second half of 2011.”