When U.S. Secretary Snow urged the Chinese to learn from America's example by spending more, saving less, and taking advantage of the "financial sophistication" on offer by Wall Street, we do not suppose he had Refco in mind. Until a few days ago, Refco was the world's largest broker of futures contracts. But now the company's 2012 notes trade for only 16 cents on the dollar and trading in the stock was halted on October 13th, after shares had lost 64% of their value.

He probably wasn't thinking of the geniuses at G.M. and Delphi either. The businesses are among the biggest in the country. They can afford to pay the brightest minds on Wall Street to come up with the most sophisticated products ever invented. Still, one company struggles to strip its workers of the money they were promised; the other is already broke.

What we haven't been able to figure out is how "sophistication" actually works. We know how it works at dinner parties. The most sophisticated guests are always the most insufferable. They are the ones who will tell you which restaurant in Cairo deserves your custom, how the Iraq mess could be resolved with greater international cooperation, whose exhibits at the Tate are the most "engaging" and why your tastes in wine make you seem like a bumpkin.

The problem with being an international sophisticate, as we are discovering, is that it is very expensive, and getting more expensive all the time.

Coutts, the private bank whose most illustrious client is Britain's Royal Family, recently noted that the price of being rich had gone up. The number of millionaires in Britain has gone up by more than 80% in the last four years, thanks largely to increasing in property prices. The average house has gone up 64% in that same period, so that anyone with an un-mortgaged house in central London is a millionaire. Since the 1990s, says Coutts, real estate has approximately tripled in price, as has the cost of being rich. Now, you must have at least three million pounds (about five million dollars) before you can enjoy a "millionaire's lifestyle."

In London, it now takes an annual income of 298,000 pounds - about half a million dollars - to live a "luxury" lifestyle, according to the bank. "A millionaire's lifestyle" includes a "Five-bedroom house with two staff, two luxury cars, an apartment and 90,000-pound yacht in St. Tropez, 12,000 pounds on eating out and luxury holidays worth 19,000 pounds per year."

Hmmm...it sounds to us as though the bank has badly miscalculated. Five million dollars of assets, at 5% interest, produces only $250,000 of annual income. That is, before tax. After tax, a household would only have about $150,000. The garage...we mean, coach house...we rent in South Kensington costs us nearly that much alone.

"They are being absolutely ridiculous," comments Michael Winner. "To live like a millionaire on three million pounds you'd have to live in the Outer Hebrides... All in all, to live the traditional millionaire's lifestyle I would say would cost 600,000 pounds to 700,000 pounds a year...with just three million [pounds], you would have to be living at the YMCA."

Why has the cost of living the high life gone so high? We have an answer for everything, dear reader. The Chinese export things that you find at Wal-Mart. That is why the "cost of living" for the average lumpenconsumer is rising only modestly (Oops...what's this? Last month the CPI in the United States shot up 1.2% - the biggest increase in 25 years).

But the money-shuffling, property-developing, house-flipping, debt-mongering super-sophisticated businesses of The City and Wall Street are hugely profitable. They throw off large amounts of cash...money that doesn't go shopping at Wal-Mart. Instead, these high earners want what the Chinese cannot produce: houses in South Kensington, apartments in St. Tropez, dinners at Lucas Carton, and ugly modernist paintings sold at auction at Christies. The high rollers are desperate for status, and status symbols are going up in price as more and more rich people bid for them. Each purchase of a rare vintage wine or automobile, a Picasso or Modigliano, an apartment on the avenue Foch, or Cadogan Gardens makes them more sophisticated.

See how simple it is, dear reader? If the Chinese were only to avail themselves of these sophisticated services offered by the City or Wall Street, they could have enough money to live sophisticated lives.

Of course, we can't help but recall the most sophisticated financial company of all time: Long Term Capital Management. The firm had not one, but two Nobel laureates in economics on its staff, and a team of dozens of PhDs from the worlds leading universities. You can't get more sophisticated than that. Like all financially sophisticated enterprises, LTCM used debt - leverage - to increase the rate of return on its sophisticated investments. If only the Chinese had known about it!

But we are sorry to report that Long Term went bust in the short term, owing billions to its counter-parties, and almost brought the entire world's financial system to its knees. Then, central bankers and loan sharks came to the rescue with more credit, more leverage, and more sophisticated ways of getting people in over their heads.

And that is where we are now. Our credit industry is so sophisticated...which is to say, it has so many tricks up its sleeve...that the entire nation is practically broke.

*** Poor G.M. and Delphi factory workers. Delphi's chief executive says he will work for $1 a year, which is probably more than he is worth. The man pocketed a $3 million signing bonus in June. We are not shareholders; it is none of our business. But we would be not terribly surprised that he is leaving a few months from now - further enriched by an exit bonus on the way out.

The man is up against the forces of history. He has a labor force 10 times as expensive as his rivals in Asia. Press reports, today, said that the poor shleppers, toters, and bussers might have to give up more than half their hourly wages in order for the industries to stay in business.

"That will mark the end of the era in which ordinary working Americans could be part of the middle class," writes Paul Krugman in the International Herald Tribune. "America is a much richer country than it was 30 years ago," he continues, explaining why mommas don't want their babies to grow up to be working stiffs, "but since the early 1970s the hourly wage of the typical worker has barely kept up with inflation." In 2004, for example, a year in which the U.S. economy boomed...far outpacing its rivals in Europe...the median real income of full-time, year-round male workers fell more than 2 percent."

Bummer.

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