Professor Irving Fisher set the pace on October 16, 1929. The Harvard man was the most renowned economist of his day. But people should have known he was an idiot.

In WWI, he forecast that the war would be very bad for the United States. The Europeans would withdraw their money from Wall Street, he predicted, because they would need it to finance the war. America would be cut off from trade with Europe, stocks would fall, and the economy would go into a slump.

Of course, what happened was the exact opposite. Europeans bought huge quantities of goods from the U.S. and paid for them with their gold. America enjoyed a great boom.

And then, he was a champion of prohibition. He thought that outlawing booze would increase the nation’s efficiency and boost demand for alternative amusements, such as “automobiles...travel...and education.”

(As to whether prohibition makes a society more prosperous, we are indifferent; even if it were true, it still wouldn’t be worth it, in our opinion.)

So when he announced, just days before the big crash, “stock prices have reached what looks like a permanently high plateau,” shrewd investors should have taken it as a sell signal.

The man was the worst sort to have in public life – a world improver through and through. Not only did he believe that man could be improved by forbidding him from having a drink now and then, he believed the U.S. economy had actually been improved by the establishment of the Federal Reserve in 1913. The problems of bubbles and panics had been solved, he said.

What’s more, he maintained that U.S. industry had come under the spell of “scientific management” in which modern, educated leaders, “specially fitted at once to forecast and to mould the future,” were in charge.

There were many more reasons to think that a new era really had come. There was new technology – lots of it. There were new investment trusts, an early version of today’s mutual funds, which were a big hit with investors in 1929. America was also the world’s fastest growing major economy...with the strongest currency; overseas investors couldn’t get enough.

Then, in October, the stock market began to shake. There was a sharp drop in the second week of the month – right after Fisher’s famous remark. But he brushed off the decline. It was just “shaking out the lunatic fringe,” he said.

As it turned out, it shook out everyone.

But everyone still loves a new era!

Only two years ago, many thought residential real estate had entered a new era.

“South Florida,” said a realtor quoted in the New York Times, “is working off of a totally new economic model than any of us have ever experienced in the past.”

The dimensions may have been a bit stretched, but the model was the same boom-bust model Florida had followed in the 1920's. And now, the fabric is snapping back to its normal size. Just two weeks ago, an auction of Miami condos shrank prices down to half their level of 2005.

In the late ‘90's was another new era – one based on communications technology and centered on dotcom start-ups. The technology proved remarkably resilient and productive. Even Alan Greenspan said he thought we were onto something new. But the bubble in tech stocks blew up anyway – as they always do.

One bubble bursts only to puff up another.

Now, the bubble du jour is in China.

In Shanghai, cab drivers offer stock tips. People stand in line in brokerage offices to open accounts. China’s largest brokerage, CITIC, is bigger than Bear Stearns (BSC) and Lehman Bros. (LEH) combined. And stocks are soaring. Now they’re trading at an average of about 50 times earnings. Pretty rich.

“Déjà vu” is a French expression, well known to investors in the West. We wonder if there is an equivalent in Mandarin.

Iran now sells 85% of its oil in currencies other than the dollar, with 65% sold for euros (EUR) and the other 20% for yen (JPY). Iraq threatened to sell its oil for euros; the Bush administration invaded soon after. In his book, The Age of Turbulence, Alan Greenspan reportedly claims that the oil issue was an important reason for the invasion.

We recall estimates that after the United States took control of Iraq, so much oil would be pumped that the price would fall back to $10. It didn’t work out that way; nothing about the Iraq adventure worked out the way backers hoped. Except for one thing: now the U.S. has a big, expensive base in the heart of the Middle East.

It costs about half a billion dollars per day to keep the operation up, or about $180 billion per year. And recently, our elected representatives gave a thought to how the bill could be paid. Well, they thought about it for four hours. Then they decided to do what they always do...pass the buck.

A report from TheHill.com:

“All told, the Democratic proposal for an ‘Iraq tax’ lasted about four hours. That’s roughly the amount of time from when House Appropriations Committee Chairman David Obey (D-Wis.) gave life to the idea with his endorsement, to when House Speaker Nancy Pelosi (D-Calif.) strangled it.

“‘Just as I have opposed the war from the outset, I am opposed to a draft and I am opposed to a war surtax,’ Pelosi said in a statement issued this afternoon.”

Byron King comments:

“The U.S. Constitution gives Congress the power to raise an Army and a Navy, and to declare War. The power of the purse is basic to the existence of national military power, and hence a controlling element of national strategy. Power of the purse is also the ultimate control of the Legislative branch over the Executive’s otherwise plenary role as ‘Commander in Chief of the Army and the Navy’ (a quaint role, designed in 1787 specifically with George Washington in mind, as opposed to any other George W.). Use it or lose it.

“Under the Republican political control of 2001 - 2006, and at the behest of a Republican president, Congress was OK with fighting the war in Iraq but not paying for it with increased taxes. Not even, say $0.50 per gallon tax on gasoline. (It might interfere with peoples’ trips to Disney World.) And certainly no 2% surtax on the hedge fund managers of Greenwich (who know quite a bit about 2% fees). Better to borrow the funds, was the apparent philosophy, and lay the cost off on future generations...

“Now under new management, Congress daily reminds us that it is not OK with fighting the continuing war in Iraq, but still refuses to pay for la guerre with increased taxes. Better to borrow more funds, apparently goes the thought process, and lay off even more of the cost on future generations.

Too bad about that next generation. They are going to have to pay for every ham sandwich eaten by government employees from the beginning of the 21st century to the end of time. And every drug handed out by Medicaid. And every retired civil servant’s pension...and every presidential tour...and every cartridge spent shooting at ‘insurgents’ in every godforsaken hellhole in the whole damned world.

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