It is Victory in Europe day…another holiday in France.

But that doesn't stop us. Long-time Daily Reckoning sufferers know that we don't take holidays; too tiring. Besides, there are always things to be reckoned with. If we don't reckon with them, who will?

Yes, the world just keeps rollin' along. It is always different - and always the same.

The Dow hit a new high again yesterday. Massive amounts of phony 'new wealth' are being created. What's this new wealth to do, but chase after the Dow and other assets? And what can assets do but respond…by going up in price?

Then, the poor yahoos see prices rising and come to exactly the wrong conclusion: these assets are becoming more valuable - and safer too. Something has happened that makes the world more prosperous than ever…they think…something that will make anyone rich, if he just gets with the program.

Here, we offer not so much a counter-view, but simply gratuitous insults and ridicule.

A financial asset is merely a tool for making money. Imagine it as a factory or as a hotel or as a computer program. What is it worth? Only what it can produce. It doesn't produce more just because people pay more for it. Just the contrary. The more dollars you have to pay to buy the asset, the less productive each of your investment dollars becomes! Whereas, a dollar will produce 20 cents of revenue when the asset is priced at 5 times revenues, it will only produce 5 cents of revenue when the price of the asset rises to 20 times revenue.

The value of the asset has remained the same. What has happened is that the value of the money you used to buy it has gone down.

Why?

C'mon, do we have to explain everything? Because there is more capital now chasing the same capital assets. Inflation, in other words…inflation of the money supply…has caused prices to go up.

What makes this bout of inflation particularly agreeable is that it never makes its way down to the hoi polloi. The price of labor is being held down by the globalized market. So the proles who lift and tote, never get a raise…and never get their hands on all this money. It's not cost-push inflation, led by increasing labor rates, in other words. It's asset-pull inflation, a completely different kind. It's money that the average working stiff never gets his hands on. So, he never takes it and uses it to buy cereal and milk. And he never forces his employer to raise prices.

Instead, this money stays with the people who invented it - central bankers, hedge funds, private equity funds, venture capital funds. It remains like the chips on a Las Vegas gaming table.

You see, dear reader, money creation is no longer in the hands of the central bank authorities alone. Banks no longer control the credit cycle. And gold no longer controls international money flows or relative currency prices. The whole system is out of control.

But here, another footnote is needed. A dollar may have a dull life…or an exciting one. An old-fashioned cobbler makes his dollar the dull, old-fashioned way…by working for it. That's the way wealth used to be made - by toting, by schlepping, by busting your behind…or your brains. In our opinion…this brand of 'old-fashioned wealth' - wealth that's based on tangible assets, with no bells, whistles or sexy back-stories, is the best way to make your money. We like to invest in easy to understand companies with a strong, steady and predictable cash flow and a competitive advantage. So what if they aren't touting the cure for cancer - we actually prefer it if the company we're investing in is overlooked by mainstream money…that way the price isn't artificially pumped up by brokers.

But this new wealth is different…it seems to materialize out of thin air, as if by magic.

Our old cobbler would put his old-fashioned dollar into a box…and let it sit there until an emergency, at which point it would rush out to his rescue like a volunteer fireman. But our new-model dollar - in the Age of Mammon - has ants in its pants. The thing won't sit still for a minute. Anon, it jumps into a hedge fund, for example, allowing the manager to borrow 20 more of its brethren, with only that lone buck as collateral.

And then, the manager might take his new found money and buy up the cobbler's business, against which he could now borrow another $20 and pay a special dividend to the hedge fund, which he would immediately put into A Shares on the Shanghai exchange…from where, using the shares as security, he would borrow yen and exchange them for New Zealand dollars…that he would then place in NZ bonds paying 7.5%.

Meanwhile, the cobbler's old business would go public at a P/E of 20…so now every single little dollar the cobbler makes has a capital value of $20…and the people who own 'shares' in the cobbler's business now have a financial asset. And the cobbler now feels rich and feels he should earn more money for running his business. And his wife wants to upgrade the kitchen and bathrooms. And his children tell him that he should get a condo at the beach. "It can only go up in value," they say.

You see? Money gets around a lot more than it used to. And everywhere it goes it is as welcome as a fat Christian in a lion's den.

But all this wheeling and dealing still rests on, well, heeling. The toting and lifting is just the same. The cobbler is still gluing new heels on old boots and earning a dollar doing it. What has changed is the financial world, not the real, economic world; (that changes too, but that's another story…)

Always and everywhere, money talks. And when a real mania gets going, it yells and screams…and bids up prices as the players get more money to play with.

This is what some economists call the 'financialization' of the economy. Things that previously had modest value are put 'in play.' Pretty soon, people think they are getting rich…as their assets rise in 'value.'

But that ol' man river just keeps rollin' along.

*** "The US and world economies have already received a good stiff dose of inflation," our friend Nate Lewis tells us.

"It could be remedied by appropriate action by the Fed and other central banks. In practice, this would likely mean rate hikes, although there are other, more effective methods. In 1969, to counter incipient inflation, Fed chairman William McChesney Martin took action that drove short-term rates to 10%. In 1974, Fed chairman Arthur Burns' anti-inflation policies took rates to 13%. In 1980, Fed chairman Paul Volcker's anti-inflation policies took rates to 14% or higher. In 1989, Fed chairman Alan Greenspan's anti-inflation policies took rates to 9.5%. The political support for such policies today is virtually nil, especially considering the wave of adjustable-rate mortgages coming due over the next three years.

"Indeed, many Fed-watchers have expected the Fed's next move to be a reduction in policy rates. Whether this turns out to be correct or not, this expectation alone suggests that the trend toward further decline in dollar value will continue. It may not show up in the dollar/euro or dollar/yen rate - the dollar didn't fall much against foreign currencies in the 1970s either - but it would show up in the dollar/gold rate. Following our worn - but useful - 1970s roadmap, a move to $1000/oz. or beyond would probably be accompanied by a blooming of full-on 1970s-style inflation. It could happen by the end of this year.

"Gold never really 'goes up.' It simply holds its value while the values of other things are collapsing due to inflation and currency devaluation. Many times, in the 1960s or 1990s for example, it is the most useless of assets, sitting inert and generating no income. In inflationary periods, this inertness of value is gold's most admirable quality.

"It seems these days like a lot of people can't help blurting out the H-word - hyperinflation. I am one of them, and I notice that the normally levelheaded Marc Faber has his episodes as well. We are far from such a scenario at this time, and by any reasonable standard, the likelihood of such an outcome remains extremely remote. I take this premature anxiety as a sort of premonition, the way some people feel an earthquake in their knee before it happens. There is something going on that we haven't seen before. The U.S. dollar is apparently being rejected worldwide, partially as a result of the unpopularity of U.S. foreign policy. How this all plays out remains to be seen, but a certain amount of preparation might be worthwhile if that tingling-knee thing turns out to be right."

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