Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
US Coronavirus Infections & Deaths Trend Trajectory - How Bad Will it Get? - 2nd Apr 20
Silver Looks Bearish Short to Medium Term - 2nd Apr 20
Mickey Fulp: 'Never Let a Good Crisis Go to Waste' - 2nd Apr 20
Stock Market Selloff Structure Explained – Fibonacci On Deck - 2nd Apr 20
COVID-19 FINANCIAL LOCKDOWN: Can PAYPAL Be Trusted to Handle US $1200 Stimulus Payments? - 2nd Apr 20
Day in the Life of Coronavirus LOCKDOWN - Sheffield, UK - 2nd Apr 20
UK Coronavirus Infections and Deaths Trend Trajectory - Deviation Against Forecast - 1st Apr 20
Huge Unemployment Is Coming. Will It Push Gold Prices Up? - 1st Apr 20
Gold Powerful 2008 Lessons That Apply Today - 1st Apr 20
US Coronavirus Infections and Deaths Projections Trend Forecast - Video - 1st Apr 20
From Global Virus Acceleration to Global Debt Explosion - 1st Apr 20
UK Supermarkets Coronavirus Panic Buying Before Lock Down - Tesco Empty Shelves - 1st Apr 20
Gold From a Failed Breakout to a Failed Breakdown - 1st Apr 20
P FOR PANDEMIC - 1st Apr 20
The Past Stock Market Week Was More Important Than You May Understand - 31st Mar 20
Coronavirus - No, You Do Not Hear the Fat Lady Warming Up - 31st Mar 20
Life, Religions, Business, Globalization & Information Technology In The Post-Corona Pandemics Age - 31st Mar 20
Three Charts Every Stock Market Trader and Investor Must See - 31st Mar 20
Coronavirus Stocks Bear Market Trend Forecast - Video - 31st Mar 20
Coronavirus Dow Stocks Bear Market Into End April 2020 Trend Forecast - 31st Mar 20
Is it better to have a loan or credit card debt when applying for a mortgage? - 31st Mar 20
US and UK Coronavirus Trend Trajectories vs Bear Market and AI Stocks Sector - 30th Mar 20
Are Gold and Silver Mirroring 1999 to 2011 Again? - 30th Mar 20
Stock Market Next Cycle Low 7th April - 30th Mar 20
United States Coronavirus Infections and Deaths Trend Forecasts Into End April 2020 - 29th Mar 20
Some Positives in a Virus Wracked World - 29th Mar 20
Expert Tips to Save on Your Business’s Office Supply Purchases - 29th Mar 20
An Investment in Life - 29th Mar 20
Sheffield Coronavirus Pandemic Infections and Deaths Forecast - 29th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast - Video - 28th Mar 20
The Great Coronavirus Depression - Things Are Going to Change. Here’s What We Should Do - 28th Mar 20
One of the Biggest Stock Market Short Covering Rallies in History May Be Imminent - 28th Mar 20
The Fed, the Coronavirus and Investing - 28th Mar 20
Women’s Fashion Trends in the UK this 2020 - 28th Mar 20
The Last Minsky Financial Snowflake Has Fallen – What Now? - 28th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20
UK Supermarkets Coronavirus Panic Buying, Empty Tesco Shelves, Stock Piling, Hoarding Preppers - 22nd Mar 20
US Coronavirus Infections and Deaths Going Ballistic as Government Start to Ramp Up Testing - 21st Mar 20
Your Investment Portfolio for the Next Decade—Fix It with the “Anti-Stock” - 21st Mar 20
CORONA HOAX: This Is Almost Completely Contrived and Here’s Proof - 21st Mar 20
Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10 - 21st Mar 20
Coronavirus - Don’t Ask, Don’t Test - 21st Mar 20
Napag and Napag Trading Best Petroleum & Crude Oil Company - 21st Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy - Government PANICs! Sterling Crashes! - 20th Mar 20
UK Critical Care Nurse Cries at Empty SuperMarket Shelves, Coronavirus Panic Buying Stockpiling - 20th Mar 20
Coronavirus Is Not an Emergency. It’s a War - 20th Mar 20
Why You Should Invest in the $5 Gold Coin - 20th Mar 20
Four Key Stock Market Questions To This Coronavirus Crisis Everyone is Asking - 20th Mar 20
Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter - 20th Mar 20
The Coronavirus Contraction - Only Cooperation Can Defeat Impending Global Crisis - 20th Mar 20
Is This What Peak Market Fear Looks Like? - 20th Mar 20
Alessandro De Dorides - Business Consultant - 20th Mar 20
Why a Second Depression is Possible but Not Likely - 20th Mar 20

Market Oracle FREE Newsletter


China Syndrome: A Building Bubble This Way Bloweth

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

By: Midas_Letter


Best Financial Markets Analysis ArticleThe 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-too” projects beyond reasonable demand. With the lesson of the feckless American crash and burn still resonating through global markets, China appears determined to avoid the blatant mismanagement of its monetary policy that encouraged those conditions in the U.S.

Inflationary pressures that cause price increases in, for example, food in China are more acutely felt by the Chinese who have a much lower average income than do Americans. It is for that reason that the Chinese are forced to also let the yuan appreciate, even though historically it discourages speculation in the yuan. Besides raising rates and letting the yuan appreciate, Beijing restricted banks’ lending capacities by raising capital reserve requirements 6 times throughout the year to the current level of 18.5%.

The forces driving the bubble growth in China are the same as the United States in 2006. Higher wages, abundant cheap credit, and rampant real estate price increases made the U.S. economy look like it was on a roll that would never end. But it did. And so will China’s.

China Holds the Aces
China has a higher degree of regulatory ability than the U.S. does, since the U.S. government has essentially become the public perception management division of the financial services sector. Genuine public interest protection had all but disappeared until Obama took control and re-mandated the CFTC and the SEC with such direction. China tends to act more arbitrarily in the interest of preserving public harmony, and therefore its own government. It has ceased to become a communist society, and is now more accurately categorized as a totalitarian capitalist system, very similar, in reality, to the United States. Only in the United States, the two-party administration swap every four to eight years means blame can be used to obscure corrupt self-dealing, unlike in China where the uni-party has the very distant future as well as the distant past as constant consciences to inform the present policy.

With such a pro-regulation, hands-on approach to economic management, it is unlikely that there will be a spectacular and sudden collapse such as that which occurred in the U.S. when powerful government supported interest groups decided to pull the plug on Bear Stearns and then Lehman Brothers in a blatant move to eliminate competition from the financial sector. China doesn’t tend to wear rose coloured glasses when making economic policy, because they assume that the same government party who cooks up today’s policy will be the same one that has to eat it years hence. In this regard, the Chinese have the upper hand in protecting their economy from overheating too much.

But that doesn’t mean they can control the root problem to all bubbles, which is excessive capital supply. Arguably, the U.S. is engaged in a form of economic warfare against China by printing and thereby devaluing its dollar as China tightens availability of the yuan and lets its value appreciate.

As 2011 gets underway, and China is forced to confront inflationary pressures with the three tools at its disposal – interest rates, exchange rates, and bank reserve ratios – the U.S. will continue with the only tool at its disposal – counterfeiting U.S. dollars and flooding the market with them. Ironic that China – brutally undemocratic – should emerge as the only global government with the wisdom and forbearance to manage its money supply with a genuine interest in ensuring a disciplined global marketplace for future generations.

What the United States clearly fails to grasp is that their undisciplined quantitative easing malarkey is undermining their ability to remain a dominant force in the increasingly unified global economy. Looking back on 2010, unbiased observers would have no choice but to concede that China easily out-governs the Untied States in economic terms. In the western world, only Germany approaches the self-discipline apparent in China’s policy evolution.

The announcement of the 25 basis point rate hike in China had an immediate effect on industrial commodities prices, and should be a clear warning sign to western economists. Stock prices slumped in reaction as investors priced in the diminished demand that must obviously result from tightening lending policy in China.

The lesson?

That the apparent exuberance driving the U.S. stock market to new highs could be so easily snuffed out by the equivalent of a slight shrug by the Chinese economic regulator means that, yes, China is growing a big, big bubble.

But it is a big bubble that it can control much better than the United States was capable of, and when China decides to let some air out of its bubble, it is the U.S. and Europe that will suffer. In its attempt to subvert growing Chinese economic dominance by printing endless piles of increasingly worthless dollars, the United States has inadvertently handed the one thing to China that it thought it would always have: control of the world economy.

Good for Gold and Silver
To commit a crime against another country, or against one’s own citizens, is an act of war. The United States financial system, as it exists, is making war on its own citizens, and on the citizens of other countries, by foisting the decrepit system on the rest of the world. As the clearing house for the world’s main trade medium, the ostensibly ‘private’ fed provides the very public service of prime banker to the world, and the ineptitude, or deliberate fraud, with which they execute this office, will be identified by future historians as such, and their names will forever be synonymous with the era of government positioning itself as public enemy number 1.

That this accurate characterization of the U.S. government has not become zeitgeist is due to the huge and well oiled propaganda machine that is the mainstream press. The complexity of legislative language, and its sheer volume, prevent most citizens from forming their own opinions about the state of their country. Why read the Health Care bill when you can get Glen Beck’s take on it in slickly prepackaged sentences loaded with selected power phrases and words designed to form your impression. Reconfigured semantically and redistributed through Fox Business, Squawk Box, CNBC and CNN, it permeates the public psyche in the metaphysical layer identified as truth. Dissenting and original voices, lacking the officially sanctioned language of the cartel, are labeled crackpots and freaks, and the expert production skills of the networks can make them look like incredible idiots.

But the main target of the machine is China. If China holds one third of all foreign reserves in U.S. dollars and likewise denominated assets, the U.S. figures it can just keeping pounding out the dollars and China will have to continue to own them to preserve their share of global trade. The U.S. is wrong, as it will gradually find out in the upcoming years.

All this means is gold and silver will continue to be the best storage medium for the value now falsely contained in U.S. dollars. There is a day of reckoning out there somewhere, and the holders of gold and silver will understand thoroughly the wisdom of their foresight when that day arrives.

James West is the publisher of the highly influential and widely respected Midas Letter at MidasLetter specializes in identifying emerging companies in gold and silver exploration at the beginning of their share price appreication curves, and regularly delivers 10 baggers (stocks that increase in value by at least a factor of 10) to his premium subscribers. Subscribe at

© 2010 Copyright Midas Letter - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Midas Letter Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules