Saturn rant awayMinsky described the 3rd phase of the credit...

Saturn rant away

Minsky described the 3rd phase of the credit cycle as the Ponzi phase. In the 1st phase debt is incurred to create wealth ((build factories etc), the 2nd phase is incurred to speculate and creates mal investment diverting funds away from wealth creation to speculate (real estate and leveraged equity investment). In the 3rd phase deb is incurred just to keep things going, bailouts are the hallmark of this phase .

The case you raise of the ECB using 400B of its 800 B capital reserves is classic phase 3 behavior. yes they do change the rules to keep the system afloat, they change accounting rules, they printing money, they do anything they can to keep the system afloat. In this phase the economy cycles between belief and disbelief that everything will be fine. many players after these near misses assume that the inevitable collapse can be averted.

The broad market assumption is that the central banks are safe, that they have the ability weather any storm. when this is shown to a false assumption and banks like the ECB get to the end of their rope then Minsky's instability will begin. Austerity will set it off, the more they cut the more they will have to cut, eventually the realization that not only the PIIGS are insolvent but the German and French banks that lent them the money are also insolvent.

I would put the well run gold miners at about 5% of current gold mining stocks. Rowingboat came up with some hard numbers in his P/E -dividend comments above. Ive always said gold is interdependent of whether deflation or inflation hits and Ive always supported the gold case in either scenario.

It amuses me that people are happy to predict that the economic world will collapse, yet the prediction they rely on still has the central banks in place as solvent , functional and strong players. We have 600 trillion in the derivative market camouflaging massive hidden debt yet its going to be all ok, the central banks will just change the rule forever, they will bail stuff out as required, its not going to really completely break down, it only be a partial break down and loss of confidence ???????????????

Gold mining investors are not gold bugs, they accept promises written on paper made by gold mine entrepreneurial snake oil salesmen. Most gold mine investors will lose the lot. Sure there is about 5% who's stocks will recover and prosper. In a meltdown though gold investors know they dont have to take the chance of picking the correct 5%, if they buy gold or silver the know with 100% certainty they have the right wealth preservation investment. You cant buy anything with a gold mine stock certificate, when the time comes you wont even be able to trade your paper share certificate for fiat.

Buy gold and silver physical and keep it somewhere safe, dont let these stock market gamblers divert you from owning gold and silver.