Oh dear reader! This morning, we are practically panting…

The world economy is slowing down. The global financial system is falling apart.

The whole situation is a mess…a disaster for investors…a catastrophe for homeowners…a Waterloo for the financial industry. But it is God's gift to us.

What fun it is to read the paper! So much nonsense! So many clowns! Such drivel…such claptrap…everything is working out just as we expected.

We had to put down our copy of the Financial Times this morning. We were afraid of internal hemorrhage. Besides, our eyes were watering so much we could barely see…

First…there is Ben Bernanke on the cover, looking rather serious, as he appeared before the U.S. Congress yesterday. The poor man was expected to explain what was going on. What could he say, but that the economy was beset by "numerous difficulties?" He had to play the politician, in other words - the cunning dumbbell…avoiding at all costs saying anything useful or true. Of course, it is true enough to say that the economy faces troubles, but that description of it hides so many absurdities…and so many errors…and so many vanities and hallucinations.

Why didn't he just come right out and explain that Americans have been living beyond their means…and now they're being forced to cut back? That's what yesterday's retail sales figures showed - that consumer weren't spending so much. What's surprising about that? Nothing at all…we've been talking about it for months…even years.

But the news struck economists and financial reporters like a UFO sighting - they didn't know what to make of it.

There's also a photo of a long line in front of IndyMac's door - waiting to get their money back. Mr. Bernanke might have also explained what was happening in the financial industry. Wall Street banks…Fannie Mae…Freddie Mac…IndyMac…Bear Stearns and the whole lot…made their money by peddling debt to people who already had too much. What did you think…that they could do that forever?

The headman at the Fed would have done us all a service, in our opinion, if he leveled with the nation.

"Look," he might have said, "the prosperity we have enjoyed for the last few years has been largely an illusion; it was based on debt, leverage, and speculation. We all know you can't get rich by spending more than you earn. And you can create real prosperity by borrowing money and spending it on consumer items. We're now paying the price for those mistakes. Let's just get it over with."

Those words may or may not have been on call for him. He might have doodled something like that on the back of an envelope on the way to Capitol Hill. Maybe they came to him in a dream.

But when he got in front of the microphone, he realized that the truth is the last thing anyone wants to hear. He wisely avoided it, sticking with the stock phrases and standard wording of economic obfuscation.

Meanwhile, down the street, the U.S. president shifted from soporific twaddle to breathtaking imbecility.

"To the extent that we find weaknesses [in the financial system] we'll move," said the president of all the Americans, George W. Bush.

Mr. Bush has a weakness himself - for movement. He has presided over the most fidgety administration since Franklin Roosevelt. Not content to sit still, he spent more, borrowed more, and stirred up more dust than any previous administration. Now, he proposes a vast new expansion of the war against Free Enterprise.

Bailing out Bear Stearns, providing tax refund checks, and nationalizing Fannie and Freddie "signal a weakening of the administration's ideological commitment to free-market principles," says the Financial Times.

At this moment, we had to put down the paper. Where has the FT been? This administration has no commitment to any principles, as near as we can see. All it took was a terrorist attack in New York, and it threw over its entire conservative foreign policy in favor of reckless interventionism. And now we have a crisis in the financial industry. Of course, the big lenders, spenders and speculators are only getting what they deserve. Still, the Bush Administration is mounting an invasion.

We predict that it will have roughly the same results. Sweden, of all places, faced a major financial meltdown in 1991. The government hastened to intervene with a bailout. The cost - if translated to an American-scale economy - was more than $1 trillion. Mr. Bush's intervention will cost that much - we predict. Or more.

*** Let's check with our war correspondent.

As you recall, just when it looked as though inflation had the upper hand, the forces of deflation began a major counter-offensive. The artillery barrage began only a couple of weeks ago. Since then, the battle has shifted dramatically.

"The balance of economic forces is contractionary," writes Martin Wolf in the Financial Times.

He notes that inflation is not completely whipped. On the very cover of the FT is the news that "inflation hits 16-year peak." Also, gold rose strongly, which the dollar fell to a new all-time low against the euro. Still, the gods of financial war seem to have gone over to the deflation camp.

The banks are collapsing. The roof is caving in on housing. And yesterday, even the oil price slipped. It closed down $9 bucks.

So far, the black goo has confounded economists. The world economy is slowing down. People are cutting back on their use of energy. In the United States, families are taking vacations closer to home, for example.

Also, the Bernanke Fed was hinting strongly that it wouldn't be lowering rates further - and might even be raising them. Under those conditions, the dollar was widely expected to go up…and the price of oil to go down.

It didn't happen. And even now - with the price of oil dropping - you'd expect the dollar to go up and gold to go down. Nope. Didn't happen. Speculators are wagering that the United States will soften up the dollar still further…they're betting on more trouble, that is… They're dumping oil, because it will inevitably and eventually respond to the drop in economic activity. But they're buying gold, because they also want safety - from the dollar…from defaults…from bankruptcies…and from the claptrap solutions of public officials.

"If the ongoing deleveraging of the US economy weakened US consumption," continues Wolf, "the economy might go into a deep recession. US fiscal deficits would then soar and long-term US interest rates might jump. This could make the debt dynamics of the US government look very unpleasant. A flight from the dollar and dollar bonds might even ensue."

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