If you haven’t seen it, there was a “news” item supposedly from Pravda that tells us the United States, Canada and Mexico have secretly planned to introduce a new North American currency, the Amero.

Will the Amero replace the dollar? Not at all…this myth has already been debunked online. If there were a new currency we also wouldn’t expect to see it any time soon, that’s our guess. We’re in a depression. Maybe it will become a Great Depression…or a Greater Depression, we don’t know. But it is a time of credit contraction…not credit expansion.

For the moment, prices are falling. The dollar is safe…at least, for now.

We paid a visit to France over the weekend. No one knows how France stays in business. Everything is very expensive and very difficult. Half the population struggles to earn a living. The other half struggle to stop them. But more about that later….

What caught our eye, walking down the street near the Communist Party headquarters, was a clothing shop. A few blocks away, you will pay $100 for a pair of jeans. But in this sidewalk shop, you can get a pair for $10. Shirts for $5. Jackets for $8.

The store is owned and run by what appears to be a Chinese family. They probably skirt French employment law by keeping the entire operation in the family. Then, rather than an expensive store, they have a cheap storefront in a bad part of town and put everything out on the wide sidewalk. Even in bad weather, they stretch out a tarpaulin over the clothes racks.

A $3 shirt? A $10 pair of jeans? That’s deflation. A few months ago, these same clothes may have had designer brands on them – alligators or polo players, perhaps. But upscale sales are falling. So the factories take off the brands and dump their excess production onto the low-rent market.

We don’t know that for a fact…we’re just putting two and two together.

Excess capacity was built with excess credit. That’s what happens in an expansion. Entrepreneurs borrow to increase production so they can sell more products to credit-addled consumers. Then, the excess capacity dooms them. They put out too many goods and too many services. When demand falls – along with incomes and housing – prices fall too.

Yesterday, the dollar held steady. The yield on the 10-year T-bond fell to 3.69% after reaching up toward 4% a few days ago. The rise in bond yields (with falling bond prices) was probably the most interesting story in the financial world…until they stopped rising.

What’s going on?

As we explained, there is no real economic recovery taking place. In fact, there is a lot more risk and mayhem on the horizon.

And with no real economic recovery, don’t expect a real bull market on Wall Street. Or real pressure on bond yields. (Of course…there’s much more to the story…so stay tuned.)

In the meantime, yesterday, the Dow dropped 200 points. It looks to us as though the rally is coming to an end. If you’re invested in U.S. stocks now, sell them. They could go higher…but it’s not worth the downside risk.

Some things are obvious and predictable. Other things are not. And, of course, we always have to remember that we don’t know what we are talking about. As colleague Alex Green’s delightful new book reminds us, “the only certainty is surprise.” More later…

What is more or less predictable is that a severe depression is developing. Our iron law puts it this way: the force of a correction is equal and opposite to the deception that preceded it. The Bubble Epoque was extraordinary in practically every way – with illusions, frauds and absurdities galore. Ergo, so must be the Bust Epoque that follows.

From the housing sector comes news that even though houses are much cheaper they are not necessarily much more affordable. While prices are falling so are incomes and employment. Mortgage lenders, meanwhile, learned that they needed to be more careful about whom they lent money.

In 2007, the banks were so loose their arms practically fell off. If they had been young girls, you would have found short poems about them in the boys’ toilets. They weren’t prudent lenders; they were promiscuous ones. But now house prices are falling and lenders say ‘no’ to everyone. But unfortunately, that won’t undo the mistakes of the past – the mistakes that are deciding the future of the US economy. The lax lending standards caused the first wave of loan defaults that rocked the banks to their core.

So the poor lumpen are trapped between falling incomes and rising lending standards; they can’t buy a house even at a much lower price.

The retailers are trapped too. They leased huge spaces to sell their wares; now they have no one to sell their wares to.

Sales go down; so do earnings. Bloomberg reports that business executives see what is coming. They look at the figures and see their businesses trapped between high output capacity and low pricing power:

“Insiders Exit Shares at the Fastest Pace in Two Years,” begins the headline.

“Executives are taking advantage of the biggest stock-market rally in 71 years to sell their shares at the fastest pace since credit markets started to seize up two years ago.

“Insiders of Standard & Poor’s 500 Index companies were net sellers for 14 straight weeks as the gauge rose 36 percent, data compiled by InsiderScore.com show.

“Sales by CEOs, directors and senior officers have accelerated to the highest level since June 2007, two months before credit markets froze, as the S&P 500 rebounded from its 12-year low in March. The increase is making investors more skittish because executives presumably have the best information about their companies’ prospects.”

Even governments are trapped. Yesterday, Nicolas Sarkozy told the French that he wasn’t going to follow the ‘austerity policies’ urged on him by the European Central Bank. “Austerity policies never work,” he said.

The French deficit is more than twice the levels permitted by the European Union’s economic guidelines. But at 7% of GDP, it is still barely half America’s government deficit.

And over on America’s left coast, the government of Arnold Schwarzenegger is faced with the same crisis – only worse. The New York Times tells us that states, led by California, are putting government employees on forced furloughs, releasing prisoners early, closing parks and reducing education budgets. They need to watch out; citizens might notice that they never needed to spend so much money in the first place.

Speaking of prisons, for example, the states could save a fortune simply by getting rid of the jailbirds who never really did anyone wrong. By that, we mean the people who didn’t harm anyone but themselves…and arguably, not even themselves. There are hundreds of thousands of people in prison for drug crimes, for example. Let them pay a fine and turn them loose.

(If we were running things, we’d legalize drugs and make alcohol and cigarettes compulsory. TV, rap music and Barbra Streisand performances, on the other hand, would be outlawed.)

“France is rotten,” said a dinner guest on Saturday night, recalling de Gaulle’s famous warning that Vietnam was a “rotten country”…and that Americans should stay out.

“I’m fed up. You can’t do anything in this country without either getting permission or getting a fine. You can’t drive fast…even though the highways are made for much faster traffic. You can’t smoke. You can’t start a business…or sell one…or hire anyone. The way these employment laws work it’s safer to murder a bad employee than fire him.

“Someone is always telling me what to do…and it wasn’t like that a few years ago. I’m old enough to remember what it was like in the ’60s and ’70s. France was still a free country back then. You could do pretty much what you liked. You could ride down the road without putting on a seat belt. You could smoke in bars. If you didn’t like your job you could tell your boss to go to hell. Then, you’d just look in the paper…there were always hundreds of jobs. People changed jobs. If one didn’t work out…they tried a different one. Now, if they don’t like their job they go to court and the employer is really in trouble. The whole process is rotten.

“What I’m really surprised about is the way the French have gone along with all this bossing… They’re sheep.”

“Wait a minute,” another guest challenged her. “France is still a great place to live. The food is good. The weather is usually pretty good. The health service works. The trains run on time…at least, when the workers aren’t on strike. It’s pretty to look at. I don’t know how much you’ve traveled, but compared to the places I’ve seen, France is way ahead. Besides, if you don’t like it so much, why don’t you just leave? Find some other country you like better…”

“Ha…I’m too old now…and besides…they’re all rotten.”

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