So much for fabled Chinese prosperity.

If you read Mish's latest post on the subject, it's pretty clear that the illusion of Chinese prosperity is in no small measure based on unpayable debt, just like here in the US.  It seems that everyone has learned from the U.S. that in a fraudulent money system, the biggest con man is the biggest winner.  Until it all collapses of course and then the con men running the show are dragged into the streets and hanged like in Libya, etc.  When Chinese money printing eventually causes rapid price increases for food and energy for the Chinese people, there will be riots and civil unrest of all kinds.  It’s something they can delay but can never escape.  Once everyone is in on the con, the crooks outnumber the patsies and there is nobody left to fleece.  That is how the con falls apart.

Don’t be surprised if gold continues to show strength when priced in every global currency because a significant number of people in every country now understand that fiat currency is a scam. Some of them already know the answer – just store your long term wealth outside of the corrupt money system.  Of course, gold is still reasonably priced (based on many factors including global debt) because in most cases people know there is a problem but they just don’t know what to do about it.  In many cases people don’t want to think about it.  They are afraid of the unknown.  This is herding behavior 101.  Instead of just doing a simple analysis they would rather just freeze and hope that the troubles pass them by.  As long as the threat doesn’t close in too quickly, they believe that they will have time to escape. 

What they don’t understand is that the smart ones in the herd are already slowly ambling their way toward the door, trying to look nonchalant.  This is why gold has gone up a good deal in terms of fraudulent fiat currency but it has not yet gone hyperbolic.  Why nonchalant?  Because they don’t want to fight for the exit with the masses.  They want to be well positioned to just step through the portal when the herd finally gets animated about the situation.  They want to buy their fill of gold over time on a cost averaged basis.  They want to scoop up as much as they can while the price is still too low.  The global gold market is quite small when compared to things like the sovereign debt market.  If all of the money that is currently stored in "safe" (HA HA!) sovereign debt was somehow moved at its current valuation into gold, the price of gold would skyrocket 10x from its current price.

Gold will someday get ridiculously overpriced.  That is a given.  In other words, the cost of goods will have fallen relative to the buying power of the money.  This happens all the time because of the boom and bust cycle of fractional reserve banking.  Ridiculous lending leads to ridiculous overproduction which leads to unsustainably low prices as the producers fight tooth and nail for very few customers.

At some point the prices of non-monetary assets fall so low that you have to be stupid not to scoop them up.  In this case, holding long term wealth in other assets besides money (by which I mean gold) will simply be a better strategy for wealth preservation.  For example, when rental property becomes dirt cheap or when the stocks of companies with strong balance sheets with price/book of 0.5 begin paying 5-7% dividends with 20% or less payout ratios then it will be time for those with wealth (the last men standing) to buy these assets up cheaply.  These will be the tycoons of tomorrow.

As I have indicated in prior posts, one huge trigger that will likely get the herd really interested in gold will be when corporations, fearing the government printing presses, begin to seek safety in physical gold which they will begin listing as assets on their corporate balance sheets.  Nobody but nobody in the financial media is talking about this today.  The only corporations which have even breathed a word of this strategy are mining companies and even among them there is still no real push in this direction.  But it will happen because it has to happen as the fraudulent fiat currency continues to die.  Those corporations which do not figure it out will die right along with the fraudulent currency.  

Bottom line: gold is still very cheap and gold cannot be a bubble until everyone and their dog, especially the corporate dogs, are heavily invested in it.  That is certainly not the case as of February 2012 and thus it continues to make perfect sense to pursue a long term strategy of dollar cost averaging into gold as a means of long term savings.