Martin Hutchinson in Money Morning blames Fed inspired inflation and speculators:

The reason for this intense advance in commodity prices is that the Fed and its European counterpart have been pumping money into their respective economies to prevent the collapse of several major banks. The St. Louis Fed’s “Money of Zero Maturity” (the best broad money-supply measure left over since the central bank stopped reporting M3 money-supply statistics in March 2006), is up at an annual rate of 17.6% during the last six months. In Europe, Euro M3 is up at an annual rate of 10.8% during the same period – still double the growth seen in nominal gross domestic product (GDP).

In the key emerging markets, the money supply has been rising even faster – 19% in China over the past year, and 21% in India. Not surprisingly, those countries’ inflation rates are taking off, with India into double digits and China quickly getting there.

He goes on to say:

It’s fairly clear to me that concerted speculation by hedge funds and pension funds is what’s been pushing up oil prices. But that may be playing out – and reaching its limit – as the huge price increases we’ve seen in “black gold” over the past year is finally dampening consumer spending both here in the United States and in other key markets worldwide…

Dave Gonigam in Daily Reckoning sees oil supply as the problem:

…Oh, and those darn speculators. OPEC loves to blame them, and has blamed them, going at least as far back as $92 oil eight months ago.

BP (NYSE: BP) chief Tony Hayward is having none of that, calling the notion of speculators driving up the oil price a “myth.” More relevant, he told the World Petroleum Congress, is that “supply is not responding adequately to rising demand.” But then Hayward goes off the rails when, according to Reuters:

He added that politics rather than geology was the reason. “The problems are above ground not below it,” he said.

Now it’s true enough, as Hayward complains, that OPEC nations don’t like having Western oil majors like BP working OPEC oil fields the way they did in decades gone by. But the fact oil-rich nations are giving BP less access than they used to doesn’t change the fact that the world’s biggest oil fields are in decline, and new ones aren’t coming online nearly fast enough to pick up the slack. I can understand why OPEC doesn’t want to fess up to that reality, but why is Tony Hayward so reluctant?

Surely, these three factors of inflation, speculators, and lagging supply are the primary causes of rapidly rising prices. But, will any of these factors fall off or fade in the near future? Speculation is most likely to wain according to Hutchinson. Demand may well slump with consumer spending, but inflation will likely worsen… Bill Bonner says:

Talk is cheap. It’s action that is dear. And the action the Fed needs to take – raising rates – will be so potentially costly for the lame U.S. economy that Bernanke and Co. are afraid to do it. They’re hoping inflation will go away so they can continue the battle against the slump, without having to worry about their unprotected flanks. Most likely, they will make a gesture towards raising rates – perhaps a quarter of a point. But then, when the mob starts howling for his head, Ben Bernanke will drop them again.

It’s evident that the Fed does not have the will or the tools to ward-off looming inflation. With inflation eating your dollars and commodities most likely set to rise higher, there are still many opportunities to profit…

Implications

Martin Hutchinson says:

Investing in the late stages of a bubble is highly speculative. Nevertheless, I reiterate my prediction of a few months ago that gold will reach $1,500 an ounce. Even if the Fed begins to act against inflation in August, it is very unlikely that its initial actions will be effective. Don’t forget that in the last great inflationary bubble of 1980, gold hit a level that’s the equivalent of $2,300 an ounce in today’s money.

I would consider SPDR Gold Trust (formerly StreetTracks Gold Trust) shares (GLD) about the most efficient way of getting a pure gold play. As an alternative, you might consider a silver investment: The metal is currently trading at less than 15% of its 1980 high, the equivalent of $130 per ounce. If that’s a move you like, the iShares Silver Trust ETF (SLV) seems the best way to play silver directly.

Also see other commodity ETFs such as:

S&P GSCI(TM) Commodity Indexed Trust (GSG)

PowerShares DB Agriculture (DBA)

Market Vectors Global Agribusiness (MOO)

Everything fares well for Brazil.  Good news abounds and everyone is joyful… All is well?  No, not everything…. The inflationary specter has returned to frighten and preoccupy Lula, who up until recently had everything going well this year.

However, while everything was going well and the economy grew, so too did inflation, reaching 0.79% in May, the largest increase in the last 12 years.  So far this year retail inflation has reached 2.88% and 5.58% for the last 12 months.

And while it is true that inflation remains within the generous goal of two percentage points going either way, currently it is less than a percentage point from reaching the upper limit and is threatening to continue to rise.

Making matters worse, the inflation is making the poorest of the country its primary victim as food prices in May increased 1.95% (for an increase of 6.4% the last 12 months).

Is there a problem with an inflation level of 5.6%?  By comparison, Brazil is surely the envy of countries such as Venezuela and Ecuador.  However, the truth of the matter is that it is imperative to get levels such as these under control.  This is desirable not only because this level of inflation greatly affects the purchasing power of Brazilians (and it does), but also because it runs the risk of taking on a life of its own.  This in turn creates a vicious cycle, increasingly difficult to halt, for as food prices rise, the workers ask for higher wage increases (thus spiraling the situation out of control).

What will Brazil do to restrain the price increases?

In a similar situation, Argentina decided to limit its food exports (meats, wheat, corn, and the like) and the result was clearly different from that which was intended. Argentina now has an inflation problem far more serious than the one it had two years ago, only this time the situation is exacerbated by the fact that export revenues have been affected as well.  The higher inflation has stopped all investments in the economy, and Argentina was granted the investment rank of a “country not to be trusted”, due to the fact that they are now receiving less income from exporting meat than Uruguay does.

Perhaps it has not crossed Lula’s mind to limit food exports thanks to Argentina’s negative experience.

Brazil is one of the world’s largest food suppliers.  At a time of increased food production, it must now face a rise in food prices that is continuing to worsen.

Noting this situation, the Central Bank of Brazil has maintained a strong commitment to the stabilization of prices and it is clear from their demeanor that they are able to act independent of government constraints and that they are prepared to take whatever measures are necessary, including raising interest rates, to avoid runaway prices.

The Brazilian government’s Monetary Policy Committee (COPOM) Wednesday announced an interest rate hike of 50 points to 12.25%.

Brazil is showing how to combine long-term policies with measures directly related to the current situation… But how?

To clarify things: with this monetary policy, Brazil insures control of inflation using traditional methods. Since these efforts are directed at correcting the effect of rising prices, it fails to resolve the problems associated with the deterioration of the income level for the people.  Since taking office, Lula has been making plans to develop measures intended to address the needs of Brazil’s poor.  One of his plans is to increase the Family Scholarship Program’s funding to assist about 40 million Brazilians at a cost of around 11 billion reales (about U$S 6.75 billion) amounting to a 6% increase for each beneficiary (although Lula would like to see that rate a little bit higher).

Additionally, Lula has not only adopted a cautious position, but has also demonstrated sound judgment that has enabled him to take advantage of opportunities as they arise.  And this is important when one considers that increases in food prices are expected to continue for several more years.

As a result of this, Lula is creating programs to improve food production and the provision of necessary supplies (such as fertilizer).  Brazil is already contemplating measures to stimulate the growth of food production through its Program for Industrial Development (Programa de Desarrollo Industrial).

Brazil is doing well so far and that is why they are taking the current bad news so calmly, because the have confidence that the problems confronting them will be solved sensibly through strategic vision.

We will meet again tomorrow,

Horacio Pozzo

Courtomer, France Friday, June 13, 2008

First, a quick look at what happened in the markets yesterday.

The Dow rose 57 points. Oil held steady – but at a near record price of $136 a barrel. The dollar rose…and gold dropped $10.

The big news this morning is that retail sales actually went up last month – at 1%, twice what economists expected.

What? How can consumers continue to spend? They’re supposed to be cutting back. Maybe they’re spending those rebate checks.

Meanwhile, we find import prices up 2.3% in May, mostly because of higher oil prices. And the NY Times tells us that commodity price increases show “no let up.” Floods in the Midwest are aggravating the situation – driving up corn prices to new record highs.

“Inflation expectations rise sharply,” says the Financial Times.

The Fed’s ‘Beige Book’ tells us that the economy is “generally weak.”

We spent the week with a group of Internet marketers. The financial publishing business has gone electronic in a big way. In this business, you either learn how to publish on the Internet…or you fail.

Your editor, who grew up without air-conditioning, let alone without the Internet, finds it hard to keep up.

“You’ve got to understand the semantic dynamic of the bot-driven crawlers,” said one of the speakers. We had no idea of what he was talking about, but the others present nodded their heads in approval.

That is just one of the problems with growing older; you grow wiser…but wiser about things that no longer exist. When the car is slow to start, for example, we naturally think we need to clean the carburetor or check the points. Then we realize that there isn’t a carburetor and there aren’t any points. The cars have gone electronic too.

The other thing that has gone electronic is money.

In our decaying wisdom, we’re suspicious of the new electronic money. The old paper money was bad enough. Given the opportunity, central banks would print it up…far more of it than they should. Soon, there would be a lot more pieces of paper than there were things that it would buy. Now, the authorities who control money don’t even have to get ink on their hands. They can create money electronically. In fact, there is no limit on how much they can create – theoretically. Just add zeros. Add them electronically. The sky’s the limit.

But real wealth is not created so easily…

Real wealth is not electronic. It’s not just 1s and 0s – not just digital…not just phantoms that disappear when the power goes out. Real wealth is physical…things you can touch, eat, drive around in, and live in.

Real wealth and “money” are connected. But this new electronic money has plenty of stretch in it. Houses, for example, are real wealth. But in money terms, their value varies. In the ten years – 1996-2006 – for example, the price of America’s houses almost doubled. Of course, they were essentially the same houses…a little bigger perhaps…with a few more marble countertops, but otherwise not much different. What had happened that made them more valuable? Well, they weren’t really more valuable…just more expensive. America’s elastic money had stretched out to make them more expensive.

But now the elastic is snapping back. Houses are down 13% – according to Case/Shiller – from a year ago. And now an analyst at JP Morgan says they’ll probably go down about 30% before the snapback is finished in 2010.

This, he says, will cost Wall Street about $1 trillion in losses on mortgage-backed securities. It will cost the nation $4 trillion in “lost access to capital.”

Whoa! That’s the trouble with stretchable money – when the elastic snaps, it can hurt.

*** The other trouble with these new electronic systems is that they are hard to fix. When your car wouldn’t start in the ’60s, you lifted the hood…took off the distributor cap and checked for sparks. Or, you removed the carburetor and made sure it was working properly. Even when you didn’t know what you were doing, skinning your knuckles once or twice seemed to cure most minor mechanical problems.

But when an electronic system breaks down, it’s hard to figure out what is wrong…and almost impossible to fix. When money is in paper form, it is pretty easy to understand how it works. Simply count up the bills in circulation. If the supply is going up…prices are likely to follow. But this new electronic money has most people stumped. The Fed sends an electronic credit to the Bank of America, which in turn gives an electronic credit to its credit card holders. Now, they can go out and buy things. Do they have “money?” How much “money” is in circulation?

Then, the American shopper buys something made in China – where else? – so that the Chinese producer ends up with a credit in his account in dollars…which he trades with the Bank of China for yuan. The BoC doesn’t want the yuan to go up…so it creates more yuan, electronically, to trade for the electronic dollars it has received.

This was the ‘great money machine’ – an electronic machine – that was responsible for creating so much of the world’s liquidity…and the world’s bubbles.

But as we said yesterday, this machine seems to be slowing down…maybe even breaking down. America’s trade deficit is shrinking. In fact, it seems to us that the elastic currency is snapping back in America’s face. Its import prices go up…while its major asset – housing – goes down.

The import that people care most about is oil. It’s causing the highest gasoline prices Americans have ever had to pay. And it’s calling into question the whole ‘car culture’ society. In America, much more than in Europe, people live in individual, standalone houses – which are much more expensive to heat and maintain than row houses or apartments. They also live far from their work…their schools…their restaurants…and their shops.

Here in Europe, big shopping malls have become common. The small shops couldn’t compete with them on price or choice. Still, now that the price of oil has gone up so dramatically, the latest reports tell us that shoppers are turning their backs on the big malls; they prefer to walk out to neighborhood stores.

But in the United States, there are few neighborhood stores left…in fact, there are few neighborhoods. Instead, in many areas, houses were flung out like confetti from a parade float. They may have fallen a mile from a major shopping mall…or the wind might have carried them 50 miles away.

“Oklahoma’s painful car culture,” is changing the way people live, says an article on CNN Money. Out on panhandle, it is not unusual to drive 70 miles to get to work. In their big SUV and pickups, commuters might have to spend $50 a day – just to get to work. It’s not surprising that they are looking for alternatives – bikes, carpools, and buses.

Buenos Aires, Argentina May 28, 2008

Frequently I ask my macroeconomics students: “Why is it so bad to have an inflationary economy”? I can assure you that the answers I get are quite varied, at times even funny. In my opinion, if I had to choose two reasons why inflation is bad for an economy I would have to say, unquestionably, that first – it generates negative effects for an economy’s growth because it increases uncertainty for investment. Second, and possibly more important, inflation has an aggressive nature in that it adversely affects the poor – for in times of high inflation they often cannot afford the things they need.

Inflation tends to hit the poor people the hardest because they have fewer mechanisms in place protecting them against its effects. Also, due to inflationary pressures occurring in the region the effect on the poor is even greater because the increase in the cost of living typically affects essential items such as food and energy.

In the past, Latin American countries typically resorted to increasing interest rates in inflationary times. Also a very basic and widely known policy used to cool down the economy is to remove inflationary pressures on prices through lowering the aggregate demand.

But are these kinds of policies really useful when it comes to controlling inflation? I have already commented in past articles in my opinion that if inflation is caused by internal factors, then the policies that are most effective at controlling this inflation must be internal as well. But if the reason for price increases is external to the economy, then implementing more restrictive monetary policies tends to do very little to assist. Recently in Latin America, we have found instances of the effects of both internal and external pressures (i.e. domestic demand is strong while at the same time “imported inflation” is creating the most damage).

So the operative question is what can governments do when facing the impossibility of applying a restrictive monetary policy to effectively control inflation rates? One alternative could be the implementation of policies following the lead of other countries in the region, such as Mexico.

Currently, the Mexican government is implementing policies to fight the increases in basic food items. Instead of setting up price controls, a policy that ends up creating the opposite effect, Mexico is eliminating the importation duty on these items and creating a situation where the levels of supply are increased.

In keeping with this method, Mexico has decided to eliminate import tariffs on several food items such as corn, wheat, rice, and soy paste. This way, it fights inflation directly at its origin and at the same time it protects the population of the poor. This policy is complemented by a farmer support policy to increase production (a $1.9 billion package has been adopted to finance farm machinery), the elimination of tax on fertilizer and manure, and stronger aid to disadvantaged families.

Speaking about this policy, Calderón, Mexico’s president, noted: “In order to alleviate the effect of this international phenomenon in our country and to insure that it does not spread and effect those that are less fortunate, my government will implement several policies, starting today, to supplement the income of families in the face of the current international food price increases.”

These measures must be stressed because they are the ones that are most likely to have the greatest effect on containing external inflation without creating distortions in the economy. The significance of this policy is that it promotes the additional production of domestic food supplies, which in turn will decrease the dependency on external food supplies, which currently are experiencing great volatility in prices.

But maybe these are not the only benefits created by these types of measures to fight the causes of inflation…. Are there, in fact, any additional benefits to this type of economic policy?

In relation to this question, I believe that in this way, easing the monetary policy through much lower interest rate increases will benefit economic activity. And the final cost of the support for agricultural production and the elimination of import tariffs will be offset by the creation of a stronger level of economic activity.

We will meet again tomorrow,

Horacio Pozzo

Editor’s Note: Imported inflation is generating the greatest damage in Latin America, even when domestic demand remains strong. When it comes to economic policy, México is doing the opposite of some populist Latin American governments. Send your comments to me at: paola@latinforme.com

Last week, several key Chinese officials, typically not known for their candor, conspicuously noted the need to both stimulate domestic consumer spending and to bring down roaring inflation. While at first blush these two goals might appear mutually exclusive, China’s leaders do have a “magic bullet” that can hit both targets at once.

The Easy Way vs. The Hard Way

A stronger currency, commensurate with China’s increased economic strength, will simultaneously tamp down inflation and enable Chinese consumers to buy more goods and services. However, for reasons not entirely clear to me (or few others, for that matter), China’s leaders are resisting this simple-and-beneficial solution.

By prodding China’s citizens to spend more, the country’s leaders say their goal is to decrease the nation’s dependence on exports. If China’s consumers, who currently save 50% of their incomes, saved less, more of the nation’s production output would be consumed domestically and China would be much less vulnerable to downturns in its overseas export markets.

Without a vibrant domestic market, over-leveraged Americans will apparently remain China’s most important customers.

A strengthened yuan would lower the real costs of goods for domestic consumers and allow the Chinese themselves to compete more evenly with consumers in other nations to whom they currently send the fruits of their labor. As goods become more affordable in China, the Chinese will naturally consume more. A rising yuan would therefore kill two birds with one stone: It would reverse recent consumer-price increases and it would induce Chinese consumers to buy their own products.

If the Chinese were to follow such a sensible path, the consequences here in America would be immediate and severe. By allowing China’s currency to appreciate, that country’s monetary authorities would no longer need to buy and remove as many dollars from the open market, producing an immediate reduction in the demand for U.S. Treasuries, mortgage-backed securities and other U.S. dollar-denominated debt. The result in America would be a simultaneous increase in both consumer prices and interest rates. Such developments would only compound the problems already rippling through our economy.

To spur domestic spending absent such currency rebalancing, Beijing must instead rely on the nominative, simulative effects of inflation. By further expanding its money supply and allowing those increases to be passed on to workers in the form of higher wages, China will ensure that its consumers will have more yuan to spend and, hence, will use that cash to buy more “stuff.”

Such a policy, however, while having a strong impact, will only solve one problem by aggravating the other.

The Savings vs. Spending Debate

By penalizing savers through the erosive effects of inflation, China would discourage savings and jeopardize one of the true sources of its rising standard of living. Contrary to the economic hocus pocus propagated on Wall Street, in Washington and at American universities, economies grow not as a result of consumer spending, but as a result of savings. So-called “underconsumption” is the true source of prosperity because it engenders capital formation, which lies at the root of sustainable economic growth.

Here, too, the implications for Americans are dire. In effect, China’s consumers are spending only half their incomes and are lending much of the rest to us; so we’re effectively enjoying the “current” consumption that China’s frugal consumers have opted to defer.

That’s a big help right now. But think about this: As China’s consumers spend more, America’s consumers will simply be forced to consume less.

Low prices and rich consumers are a potent concoction that is sure to soothe China’s roaring economy while raising the living standards of its hardworking citizenry. It’s a simple solution that only an economist can miss.

Source: As China’s Consumers Start Spending More, U.S Consumers Will Begin to Feel the Global Economic Squeeze

The buying power of the dollar is collapsing. I received these statistics from David Hall and Van Simmons this weekend…

The average inflation rate of these basic items over the last four decades or so has been 5.5%. Let’s look at some more recent examples…

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“Three years ago, a 20-ounce Diet Coke from the vending machine in our company’s lunchroom was 90 cents,” writes David Hall. “Today, after three price increases from the vendor in three years, it’s $1.25, a 45% increase in just three years.”

“I have a friend who lives in Las Vegas. He’s a mathematical. He likes to keep track of prices at the grocery store. A year ago, a gallon of milk at his grocery store was $2.99. Today, same store and same brand of milk, that gallon costs $4.17. He likes McCormick Black Ground Pepper. A year ago, a container of the pepper was $2.99. He ran out of pepper a week ago and bought a replacement, same size container, same brand, and same store. The price… $6.99!”

These stories are compelling. They point to an acceleration of inflation. I can’t prove this acceleration, but with all the money the government is printing to pay for Iraq, to refund taxes, and to bail out Wall Street, it makes sense inflation would accelerate. 

These statistics remind me why I love investing in rare American coins. I wrote about the Morgan Dollar last week in DailyWealth. Today a Morgan Dollar costs $170. In 1985, these coins were selling for $1,000 each. It’s the same way with all rare coins. Take a mint condition Saint Gaudens $20 gold coin from the 1920s. In the mid 1980s, it sold for $5,000 each. Today you can get these coins for $2,000.

While all other goods inflate, rare coins have deflated. It doesn’t make sense. Unlike a loaf of bread or a pack of baseball cards, there’s no way to increase supply of these coins… at any price. They haven’t been produced since 1933. When you buy these coins, you buy a piece of American history. And they are beautiful, too… like little pieces of art. You’d think they would have kept pace with inflation better than gasoline. 

I think there’s a huge opportunity to profit here. As gold and silver keep rising, people are going to realize the advantages of owning physical gold and silver. Beauty and history aside, they are portable, liquid, and you can buy and sell them with cash.

Sooner or later, the rare coin market is going to attract the attention of investors. They’re going to find supplies are incredibly tight and the prices of these coins are going to shoot back up to their historical records.

If I’m wrong… and there isn’t any inflation… well how can you lose money buying a rare Morgan Dollar for $170?

Good investing,

Tom

Shocking news today…Americans get poorer!

Yesterday, the Dow staged a big comeback – up 256 points. Gold rose $16 too – to $948. And oil hit a new record – just shy of $115. Then, it went over $115 in overnight trading.

So everyone is happy – except those who are short. The goldbugs are happy because gold is headed back to $1,000. Wall Street is happy because stocks are going up. The oil industry is happy…and so are the people who make ethanol…and the people who make hybrid, fuel-efficient cars.

And here at The Daily Reckoning headquarters, in the building with the golden balls, we’re happy too. But we’re happy for no particular reason. As near as we can tell, things are working out just fine – God is in His heaven; the Queen is on her throne; and investors are getting what’s coming to them.

We held our own Council of Nicea last night…about 3AM…after much meditation and drinking. And we came up with a creed. This is the way we think things are now:

I. We believe the Great Moderation is over. It has given way to a period of volatility…a period of Great Flation – of two sorts, both Inflation and Deflation, sometimes warring with each other…sometimes joining forces…sometimes not sure which way they’re going or what they are doing. Deflation, as we all know, is the work of the devil. But inflation is the work, primarily, of America’s own central bank. According to the shadow statistics on the subject (the Treasury no longer reports the numbers), the broadest measure of U.S. money supply, M3, is rising at nearly 20% per year. If output were steady, it should mean price increases of 20% per year too. Maybe more.

So far that hasn’t happened – except in some key areas, which we’ll come to in a minute.

II. We believe that Deflation is doing its work on yesterday’s bubbles – primarily the financial industry and U.S. residential housing. Inflation, on the other hand, focuses on tomorrow’s bubbles – in resources, soft commodities, precious metals and oil.

As for deflation, we see it working on the housing industry, where housing starts are at their lowest level in 17 years…driving consumer confidence down to its lowest level since 1993. The Fed’s Beige Book confirmed that recession was either on the way or already here.

Forbes reports that the worst markets are Miami, Denver, Baltimore and Chicago. We don’t know much about the other places, but until this last bubble, Baltimore property prices had been going down for 80 years. Now, they seem to be back on trend.

The Los Angeles Times adds that prices are being depressed by foreclosed properties – which are dumped back on the market. USA Today says the situation is going to get worse before it gets better. And bankruptcy filings – caused largely by falling house prices – rose 37% last year.

We have little new information from the financial sector – except that Merrill Lynch (NYSE:MER) wrote down another $6-$8 billion. There is also the note in today’s news that John Paulson may have made more money than any human being has ever made – taking home $3.7 billion, thanks to the generous and simpleminded investors in his hedge fund. Paulson bet big that subprime loans would go down. He was right. Now, he’s the Alpha male of Wall Street.

Of course, the whole thing is a terrific fraud, on almost every level. Maybe he took only “2 and 20″ of his clients’ money last year. A lucky bet makes the managers rich…but eventually, the clients will go broke. More below…

We’re suspicious of numbers anyway. They mumble. They equivocate. They lie. Mr. Paulson may be the most miserable human being alive, for all we know. Yet, the world is focused on numbers…and on money…and we earn our living writing about it. But what do we really know? What do the numbers really tell us? We can’t really know anything important about Paulson; all we have to look at is the twisted figures.

As for inflation…yesterday, we saw not only a new all-time high for the price of oil…but all commodities are near record highs. Gold has gone up 37% in the last 12 months. Copper – thought to be a measure of economic health – is near its high. In Europe, consumer price inflation is rising at its fastest pace in 16 years.

III. We believe that the combined effect of these flations will be to lower the net worth of the United States of America. Its credits and its debits will be marked down by them both. Most important, the value of its labor will be reduced…so that Americans will be better able to pay their debts and compete (given their skills and capital formation) on the world market. (Keep reading…the figures are shocking…)

IV. And we believe that this is the way capitalism is s’posed to work – people get neither what they want nor what they expect, but what they deserve. Americans have been on top of the world for more than half a century. They have gotten ahead of themselves…they’ve challenged the gods. They have tried to do things that mortals cannot do – live beyond their means and remake the rest of the world in their own image…on borrowed money, no less. They need to be taken down a peg.

But wait, you’re probably wondering…how come Americans can’t stay on top of the world for another 50 years? Well, no law says they can’t. And maybe they will…but not before they’ve been whacked hard enough to make them change their ways. If they’re going to continue spending money at the present rate, they need to figure out some way to get more of it. Almost certainly, they will have to cut back instead. But that’s what this trend is all about – cutting back Americans’ wages, debts and spending power. And they hardly notice!

All those trillions of dollars they sent overseas represent claims on the U.S. economy…on its wealth…on its treasure…on its resources and productive capacity. But every day that the dollar goes down, those dollars buy less. Meaning, Americans’ debts go down.

Of course, their earnings go down too. Since the end of the 19th century, Americans have earned more than any other group. But at today’s dollar/euro (EUR) exchange rate, many nations are already much richer than Americans. The average American earned about $38,000 last year. But the average person in Switzerland earned $64,000. In Denmark, the average salary was $62,000. In Norway, Luxembourg and Germany all had average salaries around $60,000. The Belgians earned an average of $47,000. And the French…yes, dear reader…the frogs are now richer than Americans. The average Frenchman earns $42,000 per year. How’s that for divine comedy? How’s that for taking the starch out of the flag? In the measure that really counts – money – the French are ahead of Americans by a substantial margin.