Bill Bonner

We’re staying at the Peace Hotel in Shanghai. It’s a beautiful art-deco building right on the Bund. We left the hotel last night and had dinner a few blocks north of here. When we saw Shanghai’s skyline, across the river…it took our breath away.

“This must be a city of the future,” said Jules. “You kind of expect a flying car to appear – like on The Jetsons.”

Everything is lit up – including the boats going up and down the river.

In comparison, Paris is dull and predictable. New York is boring and worn-out. The view along the river reminded us most of London. It lights up its buildings. You get the same sort of view across the river. And London has some strikingly new and exciting buildings too.

But compared to Shanghai, London is small…and slow-moving. It is in the ‘old world.’ This seems like the new world.

Shanghai is not cheap. Dinner for a group of six, at a not-too-fancy joint on the Bund set us back $900. The hotel room is about $300 a night. And property? We’ve heard conflicting reports. It was recently the hottest city in the hottest economy in the world. The government has tried to calm the property market in China – with some success. Sales fell some 70% from the beginning of 2010 to the end of it. Prices dropped 30%.

And now?

“That’s the thing about China,” said a Dear Reader who joined us for a drink on Saturday night. “When you live in the US or in the UK you might think you know what is going on…but when you live here in China, you realize that you have no idea.”

So, let’s turn our attention back to the USA, where we have no idea either…but lots of opinions.

The Dow fell 100 points on Friday. Gold under $1,500. Oil under $100.

We’ve tried to get in the spirit of the ‘economic recovery.’ We just can’t do it.

The recovery story was always phony. So then, what’s the real story?

As near as we can tell, there are several stories running at once.

1) The Great Correction – in many of the advanced economies, but centered in America…

2) The continued rise of the developing economies…not just in Asia, but in Latin America and Africa, too.

3) The increasing scarcity of cheap energy, land, water and raw materials.

4) The decline (suicide might better describe it) of the American Empire.

5) The approaching end of the dollar-based world financial system.

There are probably a few more we forgot to mention. Each one on its own might be fairly easy to decipher and predict. But they work together…and at cross-purposes. It’s hard to figure out what is really going on…or what is causing it.

For example, the correction tends to depress prices. But the big expansion in the developing world tends to increase them.

And there’s one more major pressure on prices – the feds. The US controls the world’s reserve currency. And the US is working hard to inflate the world’s supply of dollars. That too should increase prices, eventually.

The trouble with inflation today is that it is the worst kind of inflation. It makes prices go up…but not incomes, at least not in the US. Incomes are rising in Asia. So, people can buy more cars and more meat – and push up prices. Then, Americans pay higher prices…while their incomes don’t rise.

Why don’t their incomes rise too? Because the US is in a Great Correction. It spent too much and borrowed too much in the boom/bubble years. Now, it’s paying the price. That’s why so few houses are being built; we built today’s houses yesterday. And it’s why so little money is being borrowed and spent today; we already spent it.

The Fed seems to have no idea what is really going on – probably intentionally. So, it tries to combat the correction by issuing more credit and printing more dollars – as if we didn’t have enough already. This extra money further pushes up prices, adding to Americans’ misery.

Bill Bonner
for The Daily Reckoning

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily ReckoningDice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010. 

  • Marie Antoinette

    “Shanghai is not cheap. Dinner for a group of six, at a not-too-fancy joint on the Bund set us back $900. The hotel room is about $300 a night…”

    Bill. I think the Chinese saw you coming. Did you at least get to eat off gold plates? At those prices the plumbing should have been solid gold too.

  • Bruce Walker

    The one item seldom mentioned these days is the trade deficit. It’s almost as if it doesn’t exist. Were imports and exports in balance in the United States, it would hardly matter what the Fed. It’s the cash hemoraging out of the economy that is creating rising prices coupled with stagnant incomes in the US. Were the trade deficit eliminated, at least the inflation would apply to incomes as well, making Bernanke’s goofy approach to reducing effective levels of debt more plausible.

  • et2cetera

    Bill,
    Just like almost anywhere in the newly developing countries, where there are large groups of western diners, one can always be sure of overpriced and so-so food. To get the good stuff at decent prices, ask a local or an expat who has spent years at these places.

  • dean

    Cheap food in china is often packed with all sorts of chemicals and hormones. Personally I prefer paying more for imported foods

Recent Articles

Extra!
High Frequency Trading: An Aid to Economic Collapse

John Rubino

Thanks in part to Michael Lewis's book Flash Boys, High Frequency Trading (HFT) is front and center for this round of the news cycle. Today, John Rubino continues the discussion, explaing why HFT is so dangerous, and how public awareness of it is affecting something called the "trust horizon." Read on...


Maestro
How a Central Bank Really Shapes the Economy

David Stockman

As the saying goes, there are two things you never want to see being made: laws and sausages. But to hear David Stockman tell it, there could be a third thing added to that list: how crony capitalists make money. Today, Mr. Stockman gives a complete rundown of how this corrupt system really functions, and why it makes him ill. Read on...


5 Min. Forecast
Big Gains from an Earnings Season Surprise

Dave Gonigam

It's earnings season, and that means the "expectations game" is in full swing. Of course, with so much speculation involved, this often ends up being a "contradiction game" between various media outlets. Today, Dave Gonigam explains how to sift through the noise and play a few earnings surprises for big gains. Read on...


Video
The Art of Central Banking

Kate Incontrera

If you look at all the measurements, number crunching and financial instruments that are employed at the Federal Reserve, you may come to the conclusion that economics is a science. However, in his speech at the 2013 Agora Financial Investment Symposium, Bill Bonner explains why that couldn't be further from the truth...


3 Reasons Money is Leaving the Market… and Where it’s Headed

Matthew Milner

Some of the world's most successful venture capitalists and entrepreneurs are moving their money off the stock market. Where is it going? Today, Matt Milner gives a brief explanation of this historic shift in the economy, and why it will redefine the future of nations and boost individual fortunes. Read on...