The China and the Arabs have a net national savings rate of nearly $4 trillion/year between them (about 60% of that is China and 40% oil profits created by Chinese demand). Much of that is being vented into the world market as both the Chinese and Arabs use it to buy financial assets.
They are certainly buy stocks and bonds hand over fist running those markets into a massive bubble, but they are buying gold too... There is not enough liquidity in the stock market, or even in the bond market, to absorb that many buy orders. So they are buying gold.
If you are a gold bug or stock tulip junkie you had better hope China can keep saving so much. In the past they were unable to save even a tenth of what they are saving now, and the peculiar mix of circumstances that allow them to save so much now will not last forever
Sentiment: Strong Sell
"Central banks the world over are buying gold."
That is just a restatement of the above, and nothing but a restatement of the position that gold is in a bubble. The Chinese are buying gold because they have to do something with the dollars that pile up when they peg the yuan to the dollar below market value, and sell exports. They print yuan to depress their currency and make the dollars pile up. The Arabs and Russians buy gold with dollars they earn selling oil at prices driven up by China.
The process of where the export money is coming from is obvious:
Chinese coal -- power -- manufactured good -- export sale -- dollar or euro in China's hands
They can burn coal to produce cheap power and manufactured goods where others cannot because of the Kyoto Protocol and the EPA. Eventually the price of the manufactured goods they are selling will drop to the Chinese production cost, as either they will be the only ones selling the items, or others will figure out how to produce them as cheaply as the Chinese. Whichever way it unfolds the Chinese will lose their source of dollars and euros when price converges downward to production cost, and they will have no money to buy gold with. They are buying stocks and bonds as well. The Chinese won't have the money to buy oil either when their exports collapse, and the Arab and Russian demand for gold, stocks, and bonds will evaporate.
Expect interest rates to climb over 10% when the Chinese export surplus collapses, and the stock market to lose around 70% of its value. As for gold it will be lucky to hold $300/oz.
Gold is exactly like the tulip mania. The item being bid has no real use value, at least not one remotely related to the price. It rises because someone with a lot of money is bidding it. It crashes when they stop. The other things mentioned have value as they at least produce cash flows, but their value is inflated by the big buyer the same as the tulips.
Greedful, i agree with much of your economic based posts and also believe we will eventually see a stock market crash and significantly increasing interest rates. But I don't understand your support of the Demoncraps, unless you are supporting them since they will most quickly validate your economic doom & gloom forecasts. Although I obviously dislike the Demoncraps, I also dislike the Republicans. I am a fiscal conservative but a social libertarian. In essence I want our federal government to be fiscally conservative and to stay the HLLLL out of our personal lives - the government should have absolutely no say so on who can marry who and who can have an abortion, among other things. Although the Republicans of late have not been fiscally conservative, they are no where as bad as the Demoncraps of late. Ron Paul would have been a better choice for President but he couldn't have beat Obama or Romney - being an old squeaky voice white guy, he just doesn't look or sound the part - but his economic ideas are good. Anyway, your economic posts are interesting and thought provoking. Keep them up!
I have decided to a emphasize a few Democratic positions because it I know it torments wahleee boy, and that entertains me. I blame Bush for being a Democrat, and Reagan as well, along with Slick Willie. They enabled the Chinese mess, and the debacle which is coming. As I mentioned before I align most closely with German authoritarian ideas about governance, and I don't see much worthy of praise from the libertarian or Democratic view. The Democrats could prove useful in raising taxes which is going to have to be done as there is simply no other way to pay a 10%+ interest rate on $16-20 trillion in debt -- something that is inevitable as China's export surplus and construction bubble economy, cannot last.
Totally agree that GW Bush was actually a Demmoncrap! Reagan was slightly before my time of voting. When I started voting, I was quite liberal and voted for Bill Clinton twice and, although I agree with your statement about Clinton and China, I still like Bill Clinton to this day - best charismatic politician I have ever seen and the USA prospered during his "reign". I'm not sure what a German authoritarian government would be these days (wasn't that back in the 1800's?), but I suspect it would not include the welfare freebies the USA gives to "the poor" and "the minorities". Probably the only way the US can quickly change the current welfare state is to have a dictator and military control of the masses currently on welfare to immediate get them off welfare and working the jobs their education level will allow them to work, which would also include kicking the illegal immigrants out of the country to provide space in the lower paying job market for the lower educated welfare masses. But that is not the "American way" and it will never (or at least not in the near future) happen here. Instead, the Demoncraps will keep control of Federal politics, the Press, and the entertainment industry, and provide more freebies to an increasing number of welfare #$%$ so that the USA can become like Venezuela or Cuba under Hugo Chavez Obama.
The reason for the US prospered under Clinton was because of the policies instituted by Reagan. Be watchful for the backlash ahead caused by the policies of Obama.These presidential policies set are always for years ahead and, begin with gradual implementation.
The German authoritarian model refers to government by scientific experts. The idea traces its roots back to the 18th century. The Prussian state set up academies of science and learning to cultivate the administrators and professionals to run the government and society along rational, efficient lines. The American Progressives copied major parts of the German system, especially the education system. The American government (Republican Party) built hundreds of universities, exactly as the German government did, something which the British state of the time refused to do, just as it refused to develop a good secondary education system. American & German science and business methods far surpassed the English in consequence. It was only with American help that the English managed to "win" the world wars at all... The difficulty of a place like Venezuela and Cuba is the utter lack of government for centuries. The Spanish state was always weak and incompetent because it lacked the technical ability to be much else. The Spanish had a very poor education system, and what they did have revolved around the Church and its interests. America will be relatively easy to get in order once it raises taxes and starts systematically using the tools of government to shape and better the society. It may well take the iron fist of government to soften up the opposition in the ghettos and stamp out that worthless culture. There should be no difficulty there... The crash of the various tulip manias mentioned will make it easier for stamp out the culture of individuality and waste which has cropped up in recent decades...