The rest of the world is full of dummies. And all of our ancestors were dolts.

Or America's present generation of financial messiahs is composed of fools and quacks.

That is the naked choice that confronts us this morning.

What brings us to this disagreeable menu was a remark by U.S. Treasury Secretary John W. Snow, reported in the New York Times: "Touring a village in the Sichuan province, [Snow] urged China to take a lesson from the United States on how to spend more, borrow more, and save less. He argued that China's consumers and entrepreneurs are badly in need of financial sophistication offered by American banks and investment banks."

For the last week, ever since our dinner with a pair of sharp fund managers, an idea has been nagging at us. "A country doesn't need to make anything," said the investment pros, "It can provide services - such as the financial services offered by The City in London or Wall Street in New York. Those services are very profitable because the Chinese can't compete with them. Their financial industry is not sophisticated enough."

What the dynamic duo were saying appears to be true. The smokestacks in Britain and America have stopped smoking. But both nations appear to prosper. And the most prosperous industry in both nations is finance. Who earns big salaries? Who owns big estates...big cars...and big yachts? What do mamas want their babies to grow up to be? Hedge fund managers! Or ask a father what he wishes for his son. Should the boy take a job on the assembly line...go to college at night...and work his way into management? Or should he go directly to Wall Street? You might as well ask him if he'd rather be stuck in an elevator with one sober old lady, or two young ones who've had too much to drink!

What is the financial 'sophistication' to which we all owe so much? And how come none of our ancestors, nor any other nation outside of the Anglo-Saxon world, has been able to figure it out?

The Chinese, for example, have been around for a very long time. They were eating spaghetti and firing off rockets when our own Anglo-Saxon forebears were still slithering in the mud of the Dark Ages. It is not as if the Chinese were born yesterday; it is as if they hadn't been born yet at all. They seem so naïve...so innocent...so benighted. Why the poor people still think you have to save money to get ahead! Can you think of anything so backward, dear reader? It is hard to imagine, isn't it? We mean that in this great Internet age - with all the world's secrets available to anyone who can spell google.com - how could the Chinese remain so frightfully un-sophisticated? How could they not know of mortgage equity extraction (MEW), of negative amortization mortgages (Neg Am), maximizing shareholder value (MSV), or flipping condos (FC)? We wonder if they are aware of other breakthroughs; do they know about penicillin, reality TV, rap music? Do they walk on two legs, or four? Maybe they don't even know how to use a knife and fork.

Here in London, The City is a huge source of money. As we report often, restaurants and nightclubs are full. Yesterday, walking along the Southwark riverbank, we could not even get a table for lunch. We had to retreat inland.

Here, financial sophistication has paid great dividends. As on the other side of the Atlantic, many people found that they could make more money speculating on houses than they could by working. In 2003, mortgage equity extraction (MEW) reached nearly 10% of post-tax income. And it was all so easy...so simple. Why didn't the Chinese, or 19th century Englishmen, for that matter, realize that they could live so well, merely by borrowing against their houses? We don't know, but our friend James Ferguson thinks he sees a downside to sophistication.

"Britain's homeowners are heading for bankruptcy," is his headline in MoneyWeek magazine. "What we could easily be seeing is the desperation phase (before bankruptcy stage)..." House prices are no longer going up in England. What is going up? Mortgage rates. So, people should have cut back on their MEW. That they are borrowing more, not less, is a sign of either dementia or desperation, he thinks.

"In the past, the value of their houses has kept rising and so, accordingly, has their available borrowing pot, meaning that they could always go back for more. But now, flat house prices mean those happy days are over. If they don't rein in their spending, then the next stop is bankruptcy court."

Maybe the unsophisticated rubes, hicks, Chinese, and dead people aren't so dumb after all. Of course, The City and Wall Street have made money; the credit mongers have enjoyed the biggest expansion of credit in history. What we wait to find out is what happens when the credit bubble bursts.

*** The Chinese are dopes; we don't deny it. While Americans have leveraged their economy to buy things they can't afford, the Chinese have built factories to build things for people who can't pay for them. Profit margins in many Chinese industries have practically disappeared. Companies know that the way to survive in China is to get big. The Chinese government is always worried about unemployment. People without jobs are a source of trouble. So, if you can grow large enough to employ enough people, the government will make sure you don't go under. You will be deemed "too big to fail."

This imperative sets the Chinese to work in a preposterous way: building factories, hiring people, making things...with little regard to how they will make money from it. The effect in the West is salutary: prices on consumer items fall. But a drop in sales is going to hurt in China...

That's why they're not laughing at U.S. Treasury Secretary Snow in China, they know he's a quack, but they also know he's right. Many of China's factories will go bust when U.S. buying eases off. They'll have to replace foreign demand (largely from the United States ) with domestic demand. The Chinese themselves will have to loosen up and spend money, get credit cards, and Neg Am mortgages. Then, they can all go bankrupt, not just their manufacturers.

*** We're buying cheap land in South America. But in today's paper we discover that we could get land even cheaper in North America. Ellsworth, Kansas, is giving away land to anyone who will agree to live there. Ah...there's the rub.

We recall, many years ago, we took up a similar offer from the city of Baltimore. The mayor was trying to "revitalize" the downtown area. He gave us two decrepit buildings for $1 each. The buildings were located on East Baltimore Street, near Little Italy. So, when we wanted a good meal, we'd walk a couple of blocks down to one of the many Italian restaurants in the area and hang out with mobsters.

One evening a group of us were walking along when a police car pulled up alongside us. Mistaking us for lost tourists, the officer said:

"What's the matter with you people? Can't you see that this is not a safe area? Get out of here."

Baltimore has the highest murder rate in the nation. One of its mayors tried to slow the violence by proclaiming a 'No Killing Day.' We imagined the conversations on the corner of Charles Street and North Avenue, between two civic-minded citizens:

"I see you intend to kill me. Don't you realize that this is 'No Killing Day'?"

"Oh, you're right. I'll have to wait until tomorrow."

Another initiative was aimed at getting handguns out of the hands of people who might need them. The city announced a gun 'buy back' program. Like every government program, the results were perverse. The low-lifes turned in their used and worthless guns, and took the money to buy better ones.

But people adjust quickly to their surroundings, and soon begin to think that the extraordinary is routine. We got used to stepping over dead bodies and dodging bullets.

Eventually, the downtown area did turn up. The housing projects were destroyed. House prices rose. But our timing was bad. The buildings we bought in the early '80s were sold in the mid-'90s. After the cost of renovation, they sold for less than we had invested. Even at $1, the property was overpriced.

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