In Asia, incomes rise with prices, but in America, no such luck
We鈥檙e staying at the Peace Hotel in Shanghai. It鈥檚 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鈥檚 skyline, across the river鈥t took our breath away.
鈥淭his must be a city of the future,鈥� said Jules. 鈥淵ou kind of expect a flying car to appear 鈥� like on The Jetsons.鈥�
Everything is lit up 鈥� 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鈥nd slow-moving. It is in the 鈥榦ld world.鈥� 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鈥檝e 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 鈥� with some success. Sales fell some 70% from the beginning of 2010 to the end of it. Prices dropped 30%.
And now?
鈥淭hat鈥檚 the thing about China,鈥� said a Dear Reader who joined us for a drink on Saturday night. 鈥淲hen you live in the US or in the UK you might think you know what is going on鈥ut when you live here in China, you realize that you have no idea.鈥�
So, let鈥檚 turn our attention back to the USA, where we have no idea either鈥ut lots of opinions.
The Dow fell 100 points on Friday. Gold under $1,500. Oil under $100.
We鈥檝e tried to get in the spirit of the 鈥�.鈥� We just can鈥檛 do it.
The recovery story was always phony. So then, what鈥檚 the real story?
As near as we can tell, there are several stories running at once.
1) The Great Correction 鈥� in many of the advanced economies, but centered in America鈥�
2) The continued rise of the developing economies鈥ot 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鈥nd at cross-purposes. It鈥檚 hard to figure out what is really going on鈥r 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鈥檚 one more major pressure on prices 鈥� the feds. The US controls the world鈥檚 reserve currency. And the US is working hard to inflate the world鈥檚 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鈥ut not incomes, at least not in the US. Incomes are rising in Asia. So, people can buy more cars and more meat 鈥� and push up prices. Then, Americans pay higher prices鈥hile their incomes don鈥檛 rise.
Why don鈥檛 their incomes rise too? Because the US is in a . It spent too much and borrowed too much in the boom/bubble years. Now, it鈥檚 paying the price. That鈥檚 why so few houses are being built; we built today鈥檚 houses yesterday. And it鈥檚 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 鈥� probably intentionally. So, it tries to combat the correction by issuing more credit and printing more dollars 鈥� as if we didn鈥檛 have enough already. This extra money further pushes up prices, adding to Americans鈥� misery.
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