Existing house sales in the United States fell at an 8% rate in the last quarter, twice as much as the experts expected. Meanwhile, car sales were falling at a 15% annual rate.

And in California house prices are falling, the dollar is falling, and billions of dollars’ worth of wealth is going up in smoke – literally! California is on fire. Five people are dead and a million have been evacuated. “It’s the biggest mobilization in the history of the state,” says today’s La Nacion. We hope our Daily Reckoning readers in the Golden State are out of harm’s way.

So far, only the marginal buyer and the marginal lender and the marginal investor and the marginal homeowner have been really hurt. But could problems in the credit markets move beyond the margins and into the mainstream? Could the conflagration in California portend more fireworks elsewhere?

Our Argentina financial analyst, Paola Pecora, was reading The Daily Reckoning yesterday.

“The trouble with you American financial writers is that you are too naïve,” she commented.

“Down here in Argentina,” she continued, “we don’t wonder IF we will have a financial crisis; we only wonder WHEN.”

Argentines don’t trouble themselves wondering who will suffer when the trouble comes, either. They’ve seen this movie. They know the plot. The government always tries to rig this price or fix that market. It routinely lives beyond its means, attempting to buy political support by spending money or controlling prices. Then, inevitably, it puts off the day of reckoning as long as possible. And then, when things blow up, it’s a big mess.

The smart people, the rich people, typically come out okay. They’ve got their money, or much of it, out of the country. Besides, when you’re debt free, with a nice house, enough to eat and a nice car, how rich you are is just a number. And it is a number that varies with currency exchange rates and inflation.

But the middle classes are not so lucky. When trouble comes, typically, they are the ones who suffer. They have something to lose but not enough. Their living standards go down. Of course, exactly how the crisis affects them depends on what kind of crisis it is. Inflation can wipe out their savings and their pensions. (Now, in Argentina as in America, many things tend to be automatically adjusted for inflation. But in both countries, the authorities bend the numbers so that losses from inflation are never fully made up.) Market crashes, deflation, defaults and currency depreciations hurt the middle classes too, reducing incomes, smashing nest eggs, and generally making almost everyone poorer.

“Americans are impoverished by a lack of experience,” we explained to our Spanish teacher, Gabriela. The last really major financial setback was in the 1930s; hardly anyone is alive who remembers it as an adult. After so many years with so little serious trouble, we can’t imagine that anything really awful will happen; nothing really awful ever does.

Really awful things happen to other people, not to us.

Of course, we would much rather be impoverished by a lack of financial experience than by a lack of money. But we have an intuition that one might lead to the other.

This is why we advise you, dear reader, to educate yourself, so you have the tools to protect your assets from this mammoth downswing in the U.S. economy. But where to put your money at a time like this? We recommend checking out sectors of the market that are often overlooked by Wall Street, penny stocks, for example.

Since 1926, no other class of stock has made investors more money than penny stocks. In other words, investors who buy shares of the smallest companies on the market beat those who buy stock in companies like Microsoft, GE, IBM, Intel and Cisco. And let’s face it, every neighbor, friend and family member you have invests in the same large stocks as the rest of the world.

We keep saying: housing is not an investment; it’s a consumer item. Here comes an old friend with new evidence:

“The idea that housing doesn’t go down turns on its head when you actually calculate in the real-world costs of interest, taxes, insurance, etc. For instance, before those costs are counted, it looks like 16 out of the 17 top real estate markets in the 1990s were in the black. Once you add them in, however, it turns out that not one of the top property markets went up. They were all negative.

“In the 2000s, up to May 2007, you get something similar; three markets that, in unrealistic terms supposedly shot up 18%, 33%, and 36% during that period, are all actually net losers, down 10.5%, 13.4%, and 28.2%. As in negative. The gains were phantom stats from the fantasy world of no-cost property ownership.

“Running through the rest of the list, the other major markets did still make money. But instead of the astounding triple-digit gains property owners love to point to as proof that this bubble was the real deal, you find out that only two of the markets, net of costs, actually crossed the 100%-gain mark (instead of 10 markets). And annualized, only two markets were even a little above 10% gains in property values.

“Not bad, but not a miracle by any stretch.

“Two more of those top markets just barely squeaked past the annualized 8.5% gains in the S&P 500 for the same period. All the rest of the top 17 markets looked at in this article did worse than the S&P. During what was supposed to be the biggest property boom of all time.

“Again, this isn’t to say there wasn’t a bubble. Just that it truly was an event completely devoid of sanity.”

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