Let’s see, the Dow rose 77 points on Friday (only to fall a bit this morning, but more on that below). Oil hit a new record, at above $85 a barrel.

But we always try to look beyond to news to figure out what is going on.

Despite the problems in housing, most Americans are feeling pretty fat and sassy. Living standards, at least, by the standard measures, have soared in the last 30 years. In 1950, the average new house had only 1,100 square feet of space. Now, the average is about 2,400 even though families are much smaller.

Back in the ’50s, the typical family had one car. Now, driveways are full of them. And, of course, there are Jacuzzis, air-conditioning, big-screen TVs and all the other paraphernalia of modern life.

From the Eisenhower years to the Bush years, however, the U.S. economy was maturing. In the ’50s, manufacturing profits were half the nation’s total. Americans made things and sold them to foreigners. This left us with money to spend, to lend, to save, or to invest. Typically, we saved nearly 10% of what we earned in the Eisenhower/Kennedy era.

But then came a New Era. The government spent too much in the ’60s, and rather than own up and make good, the Nixon Administration defaulted. “The dollar is our currency, but your problem,” said Treasury Secretary John Connolly in a moment of spellbinding honesty. Then, in 1972, the U.S. trade deficit stood at $3 billion. Now, the trade deficit is nearly $3 billion every day!

It did not pay to save dollars in the ’70s. Inflation rose to 12% and made them worth less and less. In a way, this was the lesson Americans most wanted to learn. They didn’t want to save anyway; they wanted to spend. Gradually, the economy shifted from one in which people made things at a profit to one in which they bought things at a loss. Households turned their attention to how to consume what they had never earned. And business turned its attention to how make money by selling to people who didn’t have any money. The economy itself shifted to one based on manufacturing to one that emphasized marketing and then finance. Factories rusted. But shopping malls and housing development proliferated.

In 1967, Henry Kaufman was made a full partner at Solomon Bros. in New York. His compensation: $25,000 a year.

Forty years later, the average hedge fund manager is taking home nearly $24,000 PER WEEK.

Meanwhile, the average U.S. weekly pay is only $841, a figure that is about the same, in real terms, as the average 30 years ago.

And here is the question to which we keep returning, a question that is purely rhetorical:

How can people who don’t earn more money still spend more?

Not only do we know the answer, we’ve given it to Dear Readers countless times:

They borrow.

Total U.S. credit debt rose during the Greenspan years alone from $9.8 trillion to $37.3 trillion, a 400% increase. That is the weight now pressing down on the U.S. economy. That is the burden that must be lightened.

And it is being lightened, in two ways. Many debts are going bad. House foreclosures in September doubled from the year before, for example.

The other way it is being lightened is by inflation. Every day, people add more debt and inflation takes a little more off. In the last 30 years, consumers, business and speculators were able to add debt a lot faster than inflation took it off. But now, debtors are already stretched to their limits and creditors are getting persnickety. A Reuters report tells us that consumers have switched to credit cards in order to continue spending. Home equity lines and mortgage refinancing has fallen from favor.

Eventually, inflation will wipe out debt. The 1,000% inflation rates in Argentina in the ’80s eliminated most debt. Still today, the country has very little debt.

Is it hard to get a mortgage? We don’t know, but if anyone is lending money in Zimbabwe, he should probably seek medical attention and bankruptcy protection; with an inflation rate of 100,000% per year, he will be wiped out overnight.

In America, the process has a long way to go. Official inflation rates are only 2%-3%, though consumers report price hikes much greater than that. Still plenty of excitement ahead!

Stay tuned...

Who’s worried about inflation? Stock markets are booming all over the world.

In the United States, stocks have doubled in the last five years. That’s an annual rate of increase of 15% per year. But the New York Times tells us that the U.S. gain is small potatoes. Almost every other stock market has done better. Of the 83 major stock market indices, since 2002, 78 of them did better than the United States. The top performer was Peru with an annual gain of 87.5%. Right behind Peru were the Ukraine at 83.7% and Bulgaria at 77.1%.

The stock markets highlight the differences between old economies and new ones. The places that are doing the best are the ‘emerging’ markets, where people are actually making things and selling them at a profit. Among the “old” economies, only Germany was a top performer with an annual stock growth of 34%. Russia rose at 43.8% per year. The Shanghai composite rose at 32.6% per year. And take a look at Vietnam! The Ho Chi Minh index rose at an annual rate of 42.6% over the five-year period.
“I spent 18 months over there, getting shot at...” says a visiting cousin. “I might just as well have stayed home...”

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