China Syndrome: A Building Bubble This Way Bloweth

Stock-Markets / Liquidity Bubble
Dec 28, 2010 - 01:42 AM

By: Midas_Letter

The investment world has become obsessed with phenomena that cause catastrophic loss – so much so that a new language has evolved, subjugating old words to new meanings. Melt-downs, for example. Collapse. Bubbles.

Bubble, in fact, is now the word that classifies any asset class believed to be overpriced as a result of investment hysteria. Right now, we have the gold bubble, the silver bubble, more generally, the commodities bubble. The real estate bubble, now burst, precipitated the world financial crisis of 2008, which, according to most financial press, is now over. Strange, that, since unemployment remains rampant, home prices are still at rock bottom, and earnings for any corporation who didn’t get stimulus cash to superficially improve their balance sheet optics, are non-existent.

But, as usual, the mainstream financial press misses the point. Gold and silver are not bubbles. Their demand as monetary metals grows in direct proportion to the diminishing confidence in the U.S. dollar, which depreciates intrinsically with every fresh $100 billion printed. The U.S. Dollar is the global standard medium of trade in fully 65% of world transactions. Outside of the G7, the rest of the world hates the U.S. dollar, because as more and more of them are printed, those exchanging commodities for dollars are getting increasingly ripped off. But that’s the point, as the crooks who run the Fed and the Treasury well know. Devalue the dollar by printing more of them, then accumulate assets for will become pennies on the dollar, default on the dollar, and base the next fraudulent currency on the asset base you have now essentially stolen from everyone else.

To suggest that gold is in a bubble according to the somewhat standardized definition applied to copper, oil, houses and soybeans, is somwehat disingenuous.

The Federal Open Market Committee (FOMC) will conjure another $75 billion in ersatz paper money each month to Q2 next year. Now that’s a big bubble. Fake demand for fake money. Headlines in the Wall Street Journal, New York Times, and the Economist waxing optimistic about the future. Fake, fake, fake.

The crazy thing about the U.S. Dollar bubble, is that it is the very air of which bubbles are these days built. Whole national and international economies trading on fake money. The valuations for products and assets no longer determined by supply and demand born of market forces. More like market forces manipulated to force prices into realms where they have no business being. Oil and copper are the best examples of commodities whose prices are severely inflated thanks to ‘investor’ interest, but what really amounts to market manipulation.

Gold and silver, as monetary standards regardless of who wants them to be, will continue to appreciate in value as long as this quantitative easing, stimulus and other words invented by the academic and political economist set continue to legitimize the counterfeiting that is actually what these practices are.

On Christmas Day, China raised interest rates in an effort to slow the growth of what it perceives as a bubble within its borders. Low rates attract hot money that pushes up asset prices and floods the infrastructure development pipeline with “me-tooâ€