“Take time to know her. It’s not an overnight thing”
- Percy Sledge’s Momma

We boarded a small plane yesterday and traded the chilly shores of the Irish Sea for the chilly banks of the Thames. Here in London, too, it is cold and rainy.

Thank God we have the financial news to warm our hearts...and more.

Bill Gross, who manages PIMCO, the world’s largest bond fund, says that professional investors were seduced by CDOs (collateralized debt
obligations) in “hooker heels.” While the moms and pops fell for mortgages in sexy, low-cut dresses, the pros couldn’t resist mortgage-backed securities, tarted up by the financial industry.

The whole financial world has had kind of a bodacious appeal lately. It is as full of strumpets as the Rue St. Denis, and its customers seem to be getting as excited. Stocks in Shanghai are rising so fast - it is as if they had put some of that tiger paw or shark privates into the city water reservoir.

We would like to go on record, dear reader, with this advice to the
Chinese: Take a cold shower.

And all over the world, the rich seem desperate to begin expensive liaisons. A mystery buyer apparently paid $300 million for an Airbus A380 double-decker Superjumbo, with room for 853 passengers. The plan will be for private use, say the reports. A big birthday bash, maybe?

And for $84 million, someone has bought himself the most expensive English house outside of London. The place is in such bad repair, says the notice in MoneyWeek, that the poor buyer will have to spend a fortune fixing it up. And another person paid $2,600 for an empty prescription drug bottle once owned by Elvis.

One wild fling after another. But are any of these love objects good enough to take home and introduce to your mother?

Poor Percy Sledge. When he found “a little girl of [his] own,” he took her home to momma. But momma took one look at her and she said: “Take time to know her. It’s not an overnight thing.”

But Percy wouldn’t listen. He went straight to the preacher. And then, later, he came home from work early and “found her kissin’ on another man.”

The hussy!

We keep warning...like Percy Sledge’s momma...but a fat lot of good it does. Some things have to run their course, from the first come-hither invitation...to the last look of revulsion and disgust. So it goes in affairs of the heart...and affairs of the wallet. All begin in hopeful anticipation and end in limp disappointment.

Nothing is sexier today than private equity. Even U2’s Bono is a partner in a private equity firm. But when dim rock singers get into a trend, dear reader, you have to wonder if it isn’t already a little late in the day. M&A activity is still going up, according to the latest reports. But as with everything else, quantity and quality vary inversely in the private equity sector. In the last four years, the debt service ratios of target companies has been cut in half - from 3.4 to 1.7.

But who cares? Now, lenders no longer ask for guarantees. New ‘cove-lit’ deals allow them to destroy their own balance sheets with no fear that their loans will be called.

Even the authorities are getting worried. When we were in Madrid a few weeks ago, we noticed that the Bank of Spain was warning investors to watch out. The world was getting far too deep in debt, said the Spanish bankers. Then, the Bank of England issued almost exactly the same alert...followed by the Bank of International Settlements, which says what we’ve been saying for years: Loose lending policies have caused a dangerous credit bubble; the world economy is more vulnerable to a setback than any time since the late ’20s.

And here comes the central bank of Norway, with reservations of its own. Yesterday, it raised its key-lending rate to 4.5%.

And at home, lawmakers have decided that hedge funds are threatening the well being of the lumpeninvestoriat with the billions in public pension funds that they now have invested in alternative investments. Lawmakers want to hike the tax rate on private equity firms that go public from 15% to 35% and one even complained to the Department of Homeland Security that Blackstone’s deal with China’s state investment fund constitutes a national security risk.

Meanwhile, both the former head of the Fed (Alan Greenspan, remember him?) and the richest man in China - Li Ka-shing - have both joined our warning that China’s stocks are in a bubble.

All of this, of course, makes us worry. We are in a camp along with so many prestigious institutions and renowned, straight-laced economists. What are we missing?

*** What is going on in the gold market? Our favorite metal fell below $645 yesterday. The price has gone nowhere in a year. Gold bugs are beginning to wonder. Is it time to give up on the yellow metal and embrace the Great Worldwide Credit Bubble?

We wouldn’t do that.

We are still in what Mises referred to as a Crack-Up Boom. It is a great boom, to be sure. Prices of all sorts of strange assets - including Zimbabwe stocks - are going up. But they are going up not because they are becoming inherently more valuable, quite the contrary. They are going up because of inflation. There is much more purchasing power in the world. Much more liquidity. Much more cash and credit - concentrated at the upper end, where people tend to buy high-priced items.

There is no particular reason why a painting or a house should be worth a lot more today than it was 10 years ago. It still gives exactly the same service. It’s just that there is more money bidding for it.

For the moment, this inflation is loved by everyone - because it is boosting asset prices, not so much consumer prices. Still, consumer prices are starting to budge upwards, too - especially in the exporting countries, such as China. As basic costs increase, so does the incentive to use its great pile of cash to pay them - rather than recycle the money into the world credit system. Sooner or later, foreigners will tire of funding U.S. and British excess consumption. They will find it more appealing, or more urgent, to finance their own consumption. Then, the cost of financing will rise. M&A activity will decline. Companies, deals and households that depend on low-priced credit will go belly up. And the credit bubble will be over.

We don’t know when...or even how...this will come about. But at the end of a Crack-Up Boom the currency cracks along with asset prices. When that happens people will wonder what their own dollars, yen, euros and pounds are worth. A few will want to lay in a little gold just in case. Perhaps even a few central banks.

Gold has been in a bull market for almost exactly eight years. The price has risen from $256 to over $700...and since backed off to below $650. Anything could happen, but it would be an odd bull market in gold that produced so little excitement. And it would be an odd Crack-Up Boom that produced so little fear and destruction. And it would be a damned odd world in which a bunch of government employees in central banks could create a truly lasting New Era in monetary history.

No, dear reader, don’t worry. This bull market in gold is far from over. This New Era of paper money, backed only by faith, will crack up. Sooner or later, as we keep saying.

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