There are three types of economies, say local economists. There are the developed economies. There are the undeveloped economies. And there is Argentina.

We’ll return to Argentina in a moment. First, let’s check on what is going on in the United States.

Checking is not as easy as reading the headlines. The problem is that everything floats. It is like trying to give the precise location of a cork, bobbing in the North Atlantic. The wind blows it. The currents carry it along. The next thing you know, it’s in Cape Town.

So, when the Dow hit a new record high on Monday...we had to ask: relative to what?

In dollar terms, the Dow has never been higher. Stock market players feel pretty good. The major Wall Street firms are telling clients that the good times are still ahead. Even Alan Greenspan says the credit crunch is easing off.

Now that the Fed is handing out more money...happy days are here again! Not only is the Dow up, but commodities are down! Oil is still over $80...but lower than it was a few days ago. The euro is still over $1.41, but lower than it was last week. And gold got whacked on Monday...but wait, it is still a lot higher than it was a year ago, or the year before that, or the year before that...

What makes stocks valuable is that you can sell them and use the money for things that you want. You can’t eat a share certificate. You can’t live in one. You can’t drive one to work. All that really matters (apart from dividends) is how much you can sell them for, and what you can do with the money.

Well, five years ago – at the very bottom of the correction – you could have bought more oil with your share proceeds than you could today...about twice as much.

And wheat? Yes, more of that too – a lot more.

And gold too, of course. Taking the Dow from its peak in 2000...to its new peak in 2007...you still cannot buy as much gold with your Dow shares as you could have seven years ago. In fact, sell your shares today, even at higher prices, and you’ll get only half as much gold.

Stocks may be going up...but the currency they’re quoted in is going down even more.

And now Bill Gross, head of the biggest bond fund in the world, says he thinks the Fed’s cuts are just beginning. He believes the housing problem will not go away anytime soon...and that the Fed will be forced to take another percentage point off the fed funds rate in response.

Good news for stocks? Many people think so. Lower interest rates are usually good for equities. And many think a lower dollar will be good for U.S. exporters too. U.S. prices are cheap and getting cheaper. Soon, America will be an export-led economic powerhouse – like Japan or China! Soon, people will be buying U.S.-made cars...our perfumes...our liquor...our computers...our gadgets. American business profits will rise. Wages in the United States will finally go up. And stocks will rise too, as earnings skyrocket.

Anything is possible. But our guess is that the dollar will go down faster than America’s stocks will go up...if they go up at all.

Nor do we imagine that all those other little corks bobbing around in world markets are going to sit still while trillions of dollars’ worth of dollar-based assets get wiped out by inflation. More than likely, they’ll dump dollars...recycling their own money into their own economies...

...forcing up real U.S. interest rates...even as U.S. financial authorities try to hold down nominal ones...sending the United States into a severe slump!

Similar things have happened elsewhere. Notably, in Argentina!

A dear reader:

“To the average American, nothing much has changed in the financial world...

“According to ‘Business News’ on PBS, everything is actually OK – there is nothing to worry about. In fact, during the middle of 2008, all problems will be solved. But when will the Chinese ever dump their U.S. treasury debts?”

A good question: when will the Asians get tired of funding America’s $800 billion annual current account deficit? Of course, we don’t know the answer. By the evidence, they should have already done so.

But the Asians bought U.S. dollar investments for two reasons:

First, because they were safe. They were a good garage in which to park their ‘surplus savings.’ They thought they wouldn’t have to worry about them.

Secondly, they put them in dollars in order to hold the dollar up. As long as the dollar stayed up, Americans could continue to buy beaucoup de stuff from Asian suppliers.

Now, both those reasons are beginning to look a little “so 2006.” The dollar is going down anyway...and their U.S. dollar investments no longer look so safe. Plus, Asians are becoming more confident about their own prospects. Their own financial instruments are becoming more sophisticated. The rate of return on Asian investments is much higher, of course, but Asians are also beginning to see that they can safely invest in their own economies, their own companies, and their own financial instruments.

When will they dump U.S. dollar financial instruments? Sooner or later is our answer.

It’s spring...south of the equator. Flowers and cherry trees are in bloom along the Avenida 9 de Julio. This morning, we got up at 5 AM and stood out on the balcony...as the great city was just beginning to stir. What a joy to see it...

We’re here for several reasons:

First, there are few places in the world where you can learn so much about economics. If there is any mistake the Argentines haven’t made yet, you can bet they are working on it.

Second, we have a feeling that America is on the road to the Pampas too. The masses clamoring for relief...the central bank offering unlimited cash and credit...the government reacting with one foolish initiative after another – welcome to the future of the U.S.A., dear reader. (About which...more to come...)

Third, we’re here because we invested in property down here. Everything takes follow-up...everything takes follow-through. Everything takes more time and money than you ever thought possible. We bought land because it was very cheap – but we quickly remedied that situation!

Cometh this note from the farm manager, in Spanish, of course:

“Señor Bonner, I hate to bother you, but the peóns are getting very unhappy. They haven’t been paid for three months...”

“But don’t you get the checks every month from the accountant in Buenos Aires?” we wanted to know.

“Yes, but something happened...the government stopped the banks from transferring money because it was coming from overseas and they thought we were laundering or something...”

“Well, what about that extra 75,000 pesos we sent in July? Why didn’t you use that?” we asked.

“Oh...we had to use that to buy hay. You know, there was a severe drought down here. I told you. We had to feed the cattle...”

But most important, we are down here because our daughter-in-law is going to have a baby! We’ve come to say “congratulations...and best wishes.”

Our old pen-pal Jack Lessinger has a new book out: CHANGE

Jack is a rare economist. He studies social trends and connects them to economic trends...and, finally, figures out how they affect the property market.

His book outlines the development of the U.S. property market over the past two centuries in terms of what he calls, “paradigmatic economic changes.” He notes that the shrewd investor always had to stay ahead of the trend. That meant, looking beyond what the then-current paradigm had raised up to what people were likely to want in the future. Instead of investing in the old colonial regions along the East Coast, for example, an investor in the early 19th century should have looked to the frontier. There, he would have found cheap land...and could have watched it soar for the next 50 years. He should have seen the huge development that would take place in Chicago and St. Louis, for example.

Later, after WWI, the landscape changed dramatically. New technology had created a new idea about how people should live – in the suburbs. For the next 50 years, fortunes could have been made simply by anticipating the growth of the suburbs – further and further out from the urban centers.

Our consumer economy did not exist before 1900, says Lessinger. Since then, it has grown and grown – “Sexy young women, smiling from the billboards, urging strait-laced and penny-pinching citizens to save less and spend more. Buy, buy, buy screamed the advertisers. Buy Coca Cola and be happy. Buy Dentine gum and be kissable. Buy Camels and be manly. The consumer economy blossomed. Houses grew bigger and more lavish, cars roomier, faster and more comfortable. What a great time to be alive!”

But buy, buy, buy is going bye-bye, says Jack. The consumer economy is unsustainable. People don’t have the money for it. It is based on cheap energy and cheap credit, both of which are running out. He thinks it will disappear by 2020.

“Get ready for an existential leap...” he warns.

The next Big Thing in American society will be a huge interest in downscaling, downshifting, and simplifying. When the baby boomers realize that their houses won’t allow them to Live Large, says another friend, they’ll begin to appreciate Living Small.

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