F Dominicus Blog

A politically incorrect blog about matters of money, government, bureaucracy, freedom and sometimes something else.

to bubble or not to bubble?

this is the question. The Dax is up around 1000 points that are roughly 16,67 %, let's see what the Dow has done: up around 1000 points also that are roughly 9.6%. Well let's see Gold: roughly up 300 EUR from 750 EUR beginning of the year, that are gains of around 40%. Now is Gold a Bubble? Well it very depends on your point of view. Unfortunately neither the FED nor the EZB, show us a graph of the money expansion and so we must deduct it from second sources: http://www.goldreporter.de/wachstumssprung-bei-geldmenge-m3/news/545/ states that M3 grows was beyond 13% in 2004!!. So with all the buying of bonds, one can assume that M3 has grown beyond that limit in 2010. So we never will know really. How much money was generated out of the blue during the last three years and what's the development of the prices. It could be that gold is a bubble, but it seems more likely that money was bubbled much more. So if we just assume a growth of 8% of M3 in 2009, and 2010. We should have seen a raise in the BIP of at least that much. This has not happened, and so the question persists where was this money spend? It seems very likely the distrust to paper-money has driven many people to buy sliver, gold, platinum.

Now we can bet on the next years. There is not strengthening of money policy in view. Bernanke just wanted to buy another few bonds at or around 600 Billions. in the EU the discussion is on to introduce "Euro bonds". That are bonds backed up by the EU, backed up by different countries. This suggests that money supply will be plenty the forthcoming future. So I'd think we see another raise in all kinds of assets. (real ones not that funny junk bonds of any EU country or the US).

Where will this bubble end? Well we have learned in 2008 that there is no one-way street to higher prices. And we all know that even the sky has it's limits. So either the central banks start contracting money or the bubble will burst with a loud bang. I'M very pessimistic that the central banks start acting responsible. I bet they fill follow the lead of the Japanese central bank and government, which now try for more than 10 years printing out there way of their recession. The result is that Japan has the highest rate of debts of all developed countries. And still it does not work. No-one is surprised but the Deledefs and it seem they believe the only way out of debt is collecting more debt..

Well this will not work and if the money bubble will burst, you hopefully have something of real value to trade or pay with. Gold is but one instrument. So I expect an extra raise of the gold price. And I expect it to inflate even stronger the more the central banks try to print us out of this crisis. If the gold prices starts cantering, all bets are off.

I really am curious which country first will draw the correct conclusions. The country which will end this fiat-money madness, will gain everything, people, money wealth. All others will end in misery and this misery has meant war in the past....


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# December 29, 2010 3:50 PM

bionic mosquito said:

"The country which will end this fiat-money madness, will gain everything, people, money wealth."

I think this is true, but it will also be true for the country that takes the first step. I think there is no way to avoid a mess anywhere. The only possibility is to stop the bubble sooner therefore making the bursting smaller. So far, I see none willing to have the courage.

"All others will end in misery and this misery has meant war in the past...."

It seems wars directly involving super powers (i.e. nuclear powers) have become too dangerous for the powers that be to contemplate. I am hard pressed to see a direct military confrontation between China and the US, for example. Both countries will be destroyed. They will fight this war a different way.

If I am wrong, it won't matter much to me at that point. Probably same for 90% of us little people.

# December 30, 2010 6:28 PM

Friedrich Dominicus said:

@bionic mosquito:

'"All others will end in misery and this misery has meant war in the past...."

It seems wars directly involving super powers...

Well I was thinking more along the lines of civil wars. Or in this case it may mean martial law in the developed countries to "defend" the Deledefs. I guess this time it will mean. The "leaders" against the rest.

If we get back to war in which China or the US are involved I'd think it could mean war in Afrika. To assure access to "vital" things like base metals, oil, gas you name it. China will pay their mercenaries and the US some of theirs...

If China wants to defeat the US, this is not very difficult any more. The just have to sell of the US Bonds...

# December 31, 2010 12:45 AM

bionic mosquito said:

On your clarification about the types of war that might be in our future, yes I would agree. Including the financial type!

All the best.

# December 31, 2010 8:37 PM