Yesterday was Martin Luther King Day in the United States. Many people stayed home from work and the U.S. markets were closed.

But, here at The Daily Reckoning headquarters, we continued our lonely vigil on your behalf, dear reader. When the end of this credit cycle finally comes, we're going to be able to watch it with our eyes wide open. We can hardly wait!

Alas...we may have to bide our time a bit longer. The market news shows no hint of a coming crisis. You can only see it coming if you read between the lines and think...which means it is invisible to most people.

Today, Boston writer Fred Sheehan (fsheehan@aucontrarian.com) reminds us of William McChesney Martin's famous speech of 1968. But perhaps we should first remind readers of the circumstances. The dollar was still tied to gold...but only by a wispy thread. And as we would see three years later, if any foreign central banks tried to pull on it, the thing would break. The U.S. federal deficit had been only $1 billion in 1965. But by 1968, the costs of the Vietnam War - the Iraq of the Johnson Administration - were mounting up. The deficit for 1967 had been forecast at $4.9 billion...then raised to $11.9 billion in August of that year. By October, Secretary of the Treasury Fowler warned that the deficit for the following year could hit $28 billion.

While the French counted their dollars and eyed the United States, investors were calm, even sedated. They had seen the stock market hit an all-time high in 1966. It had dipped in '67, but by '68 it was hitting another all-time record. Investors saw nothing to worry about. Stocks had been going up, more or less steadily, since 1949. The setback and reversal of '67 - '68 only proved to them that nothing could stop the market.

But Martin saw what was coming. "We have been living in a fool's paradise. We face a financial crisis that is not understood by the public." And then, "There is no disposition on either side of the aisle in Congress to face up to the problems," he went on, apologizing for his emotional state.

"How could he have made it clearer to sell the dollar?" asks Sheehan. "Yet the charade went on for another three years before President Nixon officially closed the gold window on August 15, 1971. Gold rose to over US $800 an ounce by the end of the decade, and paper assets were an easy avenue to lose a life's savings."

Every generation has its formative experiences. For those of us with our eyes open in the '70s, this was it - when the financial going gets tough, tough-minded investors should stay away from U.S. stocks, bonds, and the dollar.

The question we face today is simply - to what extent is that experience still relevant? The generation of the '30s had learned to save dollars and mistrust stocks. Yet, those savings were largely wiped out in the inflation of the '60s - while stocks soared. The generation of the '60s learned to spend and to buy stocks. Do we now wait for them to learn their lesson?

We don't know. But yesterday, we began to explain what was wrong with this economic boom. It is not your father's boom, we said. Because it is not a broad-based economic boom, with higher earnings spread throughout the economy. Most people are not really earning more money. The only way they can afford to spend more is by drawing down savings or selling off assets. What they have been doing, of course, is both. Savings rates have gone to near zero. And householders have taken out so much of the equity from their homes that they have come to the end of the biggest bull market in residential real estate with less of their houses in their own hand than before the boom began.

Let us linger on that point for emphasis. If you own a $100,000 house with a $50,000 mortgage, your 'owner's equity' is 50% or $50,000. If the house doubles in price to $200,000 your equity shoots up to 75% or $150,000. But in the great housing boom of the last 10 years the typical owner's equity actually went down - from 58% to 54%.

Meanwhile, people with real financial assets - stocks and bonds, mostly - have done very well. So have the people who monger these things. As Marc Faber points out, the 173,000 employees of New York's leading financial houses made more money last year than the entire population of Vietnam, some 84 million people.

At the top end of the financial pyramid, it is party time. The median price of a New York condo is over $1 million. Even that is peanuts in central London. There, houses have just seen their biggest increase since '79...(More below). And, last year, a single art auction at Christie's brought in $269 million - a new record. Christie's chairman said he had never seen anything like it.

Stopping for two cups of tea and two muffins near Waterloo station in London last weekend, Elizabeth and I spent $20. The price seemed reasonable; the little coffee shop was full. But we wondered...how many of the world's people can afford to live like this?

But therein hangs a tale...and lies a problem. Most people are not getting rich. Most people are barely making ends meet, because the great boom is a fraud. It does not lift up all boats; it lifts up only the luxury yachts. Why is that? Because it is an asset-price boom, not an economic boom.

Faber quotes Bank Credit Analyst:

"Increases in asset prices do nothing to create new resources for investment as the gains can only be realized by selling the asset to someone else, who must come up with the money from somewhere. The exception is if domestic investors sell their assets to foreigners (as the [United States] has been doing.)"

American householders are selling their houses (via mortgage refinancing and 'taking out' equity) to the lenders...who package the loans and sell them to investors worldwide. As assets rise...the 1% of the population in the financial industry or with significant financial assets gets rich. New wealth is not being created; it is merely being redistributed.

Never have so few done so little and made so much doing it.

*** China has passed two important trillion-dollar milestones. Last year, its holding of U.S. dollar reserves rose above $1 trillion. And last week, China's stock market topped $1 trillion. Since '78, when China threw off politics and turned to money as its principal enthusiasm, its economy has grown 1,000%.

*** We are prepared to believe that both China and India (and, in fact, most of Asia) are rising rapidly. We are also prepared to believe that great fortunes will be made in these booming economies as they play catch-up with the West. What we are not prepared to believe is that a U.S. investor is likely to make money by buying into these high-priced markets now.

An investor could have done well in the United States in the 20th century too...but not by buying at market highs - '29, '66 - '68, or '99.

*** And here's a sad note. Down at the lower end of the financial pyramid, we find old people are feeling a little pinched. According to the Dallas Morning News, more and more retired people are getting into financial trouble. Instead of using savings to get them through rough patches, they've gotten used to using credit cards as a safety net. The trouble with the plastic elastic is that it doesn't snap back. Once a person uses credit cards to get out of a jam, he finds he has an additional expense - the credit card bill. Older people have few ways of increasing their incomes, so they often just get farther and farther in the hole.

*** And here comes news that the rising price of gold has caused a shortage of gold coins in Dubai and the Gulf region. Amid all the noise of today's markets...with their derivatives, swaps, trade imbalances, public deficits, managed currencies and managed expectations, jiggled corporate profits, soaring prices and so forth...about the only thing in which we have any confidence is gold. We don't know how or when things will go wrong. But, like William McChesney Martin in 1968, we can't help but feel that we are living in a fool's paradise.

*** And a word of advice from our commodities guru, Kevin Kerr:

"With a new year comes a chance to wipe the slate clean, and also a chance to venture into new profit opportunities for your portfolio.

"Don't dive into the deep end with a market like gold or crude oil futures; instead, try some of the soft commodities, like grains, orange juice or cocoa, which can offer the new trader good experience without the major expense and volatility of markets like gold and oil. Sure, all the markets have risk, but some commodities are better (and cheaper) training ground then others. It's always advisable to seek some type of assistance with these markets, from a broker, newsletter or mentor."

Bill Bonner is the President of Agora Publishing.  For more on Bill Bonner, visit The Daily Reckoning.