Yes, dear, dear reader, now we have Win-Win Capitalism.

What’s “Win-Win Capitalism”?

Glad you asked.

It’s the system where no one loses. You make a trade – and there’s never anyone on the other side! Remarkably idiotic in theory, it is even more moronic in practice. Still, that’s what people think.

Since around 1980, investors have come to see capitalism as a benign force. It makes people rich, if they can only get enough of it.

“How can I get in on this capitalism thing?” they asked themselves.

Easy, peasy. Buy some shares in the greatest capitalistic institutions the world ever saw, America’s publicly traded companies. Or, if you feel a little unsure with P/Cs, yields, and double-entry bookkeeping, you can buy a house. Yes, dear reader, a house...four walls and a roof...the ol’ home place...mi casa...my digs...the nest. Over the last five years a house was not only an investment, (which is to say, an opportunity to participate in modern capitalism at its finest) it was a leveraged speculation. When you took up a house with an interest-only ARM you didn’t buy it; you had an option to buy it sometime in the future when you had the money.

Talk about win-win; you couldn’t lose with a house. Prices only went up – everybody knew that. You didn’t have to put any money down. And they gave you tax breaks too. Win, win, and win some more.

But what’s this?

The winners seem to be turning into losers. House prices are off all over the nation. And Lehman Bros. expects the number of foreclosures next year to be more than three times this year’s total.

Don’t worry. The feds are coming to the rescue. Bush, Paulson et al have already proposed a ‘teaser freezer’ package – holding rates at the low teaser levels until the homeowners can pay more...or until the press loses interest in the story, whichever comes first. And here comes the voice of age, experience, wisdom and treachery – Alan Greenspan – who says the government should provide more financial help to homeowners: “Cash is available,” said the Sage, “and we should use that in larger amounts, as is necessary, to solve the problems of the stress of this.”

Cash is available? What cash? All we see is deficits. Americans haven’t saved anything in many years. The government goes deeper in the hole every minute. He must mean the kind of cash that comes from printing presses, not the real stuff.

Let’s stop being so hard on the old geezer and return to the housing market.

We put the question to our own bro’ Jim, who has been working in the Charlottesville, VA, area for many years.

“Well, yes, prices are down,” he said. “But I only deal with the top end of the market. There aren’t enough transactions to tell what direction prices are going. But you can tell that it’s not the same market it was a year ago. Sellers expect that they’re going to have to be flexible. And buyers expect sellers to give a little. The top of the market is special, of course. People don’t have mortgages. They pay cash, or they’re doing a very different form of financing.

“Here is something that you’ll be interested in. Remember that piece of property you were going to buy down there, about five or six years ago? It was 300 acres. Beautiful spot. You were thinking you might buy it to live on when you retired. I guess that has changed now that your children seem to be concentrating over there on the other side of the pond, but that was the idea. You put in a bid of $900,000 just after you saw it.

“Well, you were right about the property. The guy who bought it paid about $1 million, I think. Then, a couple of years later, he flipped it for $3.5 million. And now some other fellow is building a house right on that knoll that seemed like such a perfect spot; it’s a huge house, maybe 9,000 sq. feet. He’s a speculator and he’s already listed the property for sale at $6.5 million.”

The property was a very good buy at $900,000. At $6.5 million, it seems a little steep. Possibly, buyers won’t want to pay that much. Even at the upper end, speculators can still lose.

For not only do prices rise and fall, people’s attitudes change in subtle ways. No one noticed when Americans began to believe in Win-Win Capitalism. They’re not going to notice when they begin to believe in Lose-Lose Capitalism either.

Yes, dear reader, it is coming.

*** The Dow fell back 178 points Friday. The dollar rose to 1.44/euro. Gold dropped below $800.

In the battle between inflation and deflation , the latter had the upper hand. It is still too early to know which way this fight will go. Inflation looks unstoppable. Deflation seems to be immoveable. We’ll have to wait to see what happens.

Our guess is that it is a fight that will become known as a bout of “stagflation.” The economy will slump. Assets will fall in price. But consumer items –especially those dependent on energy and food – will rise.

This has been our guess for sometime. But it was given a setback this morning when we saw a headline from Reuters : “Greenspan sees early signs of stagflation.”

Uh oh. If the former Fed man sees the same thing we see, we must both be wrong. But who knows? Greenspan’s record, so far, is practically unblemished by honest observation...the only major exception was when he saw stocks rising in a frenzy of ‘irrational exuberance’. Then, he was wrong about the phenomenon he was looking at; but at least he wasn’t lying. And now? Maybe he’ll be right; stranger things have happened.

On the ‘stag’ side of the coming economic equation is one headline from the Financial Times :

“Mortgage pain starts to hit spending.”

On the ‘flation’ side are two more:

“World food prices rise set to hit consumers.” And, “U.S. inflation surges to 4.3%.”

Four and three-tenths of a percent doesn’t seem like much to us. But it’s a start.

*** USA Today tells us that 2008 will be a “bumpy ride” for investors.

The paper asked a group of Wall Street pros. Naturally, they said the year ahead would be full of “challenges” but that it is still a Win-Win system. Stocks may go down in early ’08, says Dan Chung of Alger Funds, but this will only set the stage for a “significant recover rally” later in the year, in which investors could get “double-digit plus gains.” Or they could lose their shirts; but he didn’t mention it. In the new Win-Win Capitalism, there is only upside.

One of the analysts showed some sense, however. Richard Bernstein took up our theme: that it was all very well for the feds to come riding to the rescue, but they may be no more effective than a group of parking lot attendants trying to land the space shuttle. They can make money available to member banks, he points out, but “the Fed can’t force financial institutions to lend.”

Why wouldn’t they want to lend? Because they’re not sure it really is a win-win system after all. Lately, the financial industry has been taking losses. It has found itself on the wrong side of trades that were supposed to be safe. But then, so has the entire nation.

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