Last week, a headline in Canada's Globe and Mail spoke of a miracle.

"Record crude prices force US oil company into Chapter 11." We read the headline twice. It was no mistake. Even with the sunniest skies in the oil industry in more than 33 years, the Tulsa-based oil marketing company, SemGroup, still managed to find a puddle deep enough to drown itself.

Yesterday we reported Merrill's $5.7 billion in write-downs. Even with the smartest people on Wall Street running things, the firm couldn't avoid big losses. And last week, Fannie and Freddie had our attention. The twin mortgage lenders had been playing the game with a deck stacked in their favor; still, they couldn't seem to win.

How could this be? What would cause seasoned businessmen to go so wrong? For once, the president of the United States of America seemed to have it right. He said Wall Street had gotten "drunk." The party got a little out of hand, he might have added. Some lamps got broken, and a fight broke out in the parking lot. And now the financiers needed to "sober up," continued the president.

The metaphor is as good as any. But if we were filling out a police report, we'd still have some questions. We'd want to know who supplied the free booze…and why. No one asked us, but in the following paragraphs we provide the answer anyway.

During the last two decades, the percentage of the U.S. economy devoted to consumer spending went up and up and up - from 67% of GDP to 72%, a huge increase. Consumers got a taste of excess spending - and they liked it. Then, they were urged to drink more by the same people who provided the alcohol - the feds. In a consumer economy, they reasoned, growth came from consumer spending. If consumers didn't spend enough, growth slowed. So, in order to boost GDP growth, it was sometimes necessary to "stimulate" consumers to spend more - by giving them more of what they least needed, more Jim Beam-style credit.

A particularly stimulating environment following the mini-recession of '02 produced a particularly thrilling party. The Fed knocked down its key rate to 1% - and left it there for a year. Extremely low lending rates caused house prices to soar. Consumers found that they were not only able to borrow against the inflated values of their houses, but to "take out" equity, believing they would never have to put it back. As it developed, householders were able to borrow an additional $6.8 trillion, of which $4.2 trillion was spent on consumption.

But everyone thought house prices would continue to go up. In today's news, for example, we discover that IndyMac - which just went broke - used mortgage finance models explicitly based on ever-rising house prices.

The whole consumer economy functioned in much the same way as Wall Street. Profits were booked when sales were made - not when the item was paid for. Whether the consumer bought an eggbeater or a split-level in the suburbs, the salesman gave himself a bonus when the deal was signed. Someone else would have to worry about collecting!

Case/Shiller report that house prices fell 15.8% in May, from a year before. Now, the collateral for mortgage finance is falling in price and buyers are not settling up as expected. (Of course, we haven't seen any real estate agents offer to give back their commissions or any appraisers returning their fees…)

And now that the collateral is falling in price, the poor consumers are getting a little sore. Unless some new scam is found that will keep them spending money they don't have, they're going to have to cut back. In fact, as house prices go back whence they came, it seems likely that consumer spending as a portion of GDP will too. And guess what? If consumer spending were to go back to 67% of GDP, it would mean a drop of about $700 billion in spending per year - enough to wipe out all "growth" completely.

Meanwhile, New York City says it's facing a budget gap of $2.3 billion. And the Bush administration is leaving a deficit of nearly half a trillion dollars for the next person fool enough to want to live in the White House.

And we know what you're thinking, dear reader: criticize, criticize, criticize…that's all we do here at The Daily Reckoning.

"What can be done about his situation?" asked one earnest listener at the Vancouver conference last week. "What would you do if you were elected president?" she went on.

"I would ask for an investigation of the voting machines," was our reply. "Besides, there's no solution for some problems. When you borrow too much, you're going to suffer when you pay it back; that's just the way it is."

*** What's going on in the rest of the world? As you may remember, we're not negative here at The Daily Reckoning summer headquarters. Far from it. We're positive things are going to Hell in a hand-basket.

In Britain, word on the street is that mortgage approvals are running at their lowest level in 10 years. Retail CBI sales, meanwhile, are collapsing to a 25-year low.

And in France, consumer confidence is at an all-time low.

But the news is not bad everywhere.

While we think this is a good time to unload U.S. stocks - remember the Trade of the Decade still stands: Sell Stocks, Buy Gold - it may be a good time to buy stocks elsewhere. Vietnam, for example. Vietnamese stocks were battered much harder than those in the United States - with the average share cut in half from its peak. But whereas the United States is wobbling on the top of the financial pyramid…Vietnam is wobbling at the bottom. Wages are low. Investment in factories and infrastructure is high. Inflation is high too - but it's not necessarily anything Vietnam can cure, since it is largely imported, not domestic. Of course, we have no idea what direction Vietnam is going, but we like betting on underdogs…and Vietnam is such an underdog investors get fleabites.

And how about the BRICs - Brazil, Russia, India and China? These four countries are the world's biggest nations…and its fastest-growing economies. But they are very different one from the other. Brazil and Russia are resource exporters. India and China are resource importers. When the price of oil goes up, so do Brazil and Russia. India and China tend to go down on higher oil prices. And vice versa.

All of these countries suffer higher rates of inflation than the United States. Inflation is 14% in Russia, 12% in India, 8% in China, and 6% in Brazil.

The way to stop inflation, by the way, is to put the key-lending rate well above the inflation rate. In the late '70s, for example, Paul Volcker pushed Treasury yields up to 15% - 18%, in order to stop inflation, then running about 10% in the U.S. Britain had a similar experience, though its inflation rates were twice those of the United States.

Yesterday, India announced a hike in its key rate - designed to try to curb inflation. Instead of lending at 7.5%, the central bank said it would henceforth lend at 8%. But of these major nations, only Brazil is really fighting inflation seriously. As mentioned above, the inflation rate in Brazil is about 6%. But Brazil's central bank lends at 13%.

When you are investing for the long term, you have to take a long look ahead. It's hard enough to guess about what will happen tomorrow, let alone what the world might look like in 10 years. Still, a cheap country with plenty of energy, plenty of water, plenty of food, and a sound inflation-fighting monetary policy seems a better bet than a country with none of those advantages.

We'll bet on property in Brazil (which has some of the best beaches in the world)…and stocks in Vietnam.

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