Two important items in the news today:

First, Bloomberg reports that retails sales fell 2.1% in September – the biggest decrease this year.

Know what that means? It means the “Age of Thrift” is here…and that consumers really are cutting back – just like we said they would.

And it means that the consumer economy is not going to return to robust growth anytime soon. And it means, too, that people will find it hard to find jobs for a very long time.

Another thing it means is that housing prices are not likely to recover – not in our lifetimes. That was a once-a-century bubble and it has blown up.

Mortgage lenders say they expect the peak in foreclosures to come about a year from now. As for the bottom of price declines, you can expect that in 2013 or beyond. A housing bubble typically takes prices down for six years, says a study by professors Reinhart and Rogoff. But this was not a typical bubble; it was an extraordinary bubble. Seems logical that the correction will be extraordinarily deep and long too.

And it also means that this stock market rally is very vulnerable. The stock market and the economy seem to be reading different newspapers!

The Dow fell 14 points yesterday. It could begin a major drop any day. That’s why our ‘Crash Alert’ flag is flying from our London headquarters.

Yesterday, we reported the curious fact that consumer spending as a percentage of the GDP had increased. But it only increased because the other parts of the GDP – notably business spending and investment – fell off even faster.

With output falling…sales falling…and investment (in new plant and equipment) falling even faster…who’s going to hire new workers? Not many companies. And which companies are going to invest in young workers…who will have to be trained – sometimes over a period of many years – before they are really productive? Not many.

It’s the “Lost Generation,” says BusinessWeek. Unemployment nationwide is officially 9.8%. But for young people the rate is nearly twice that level – at 18%.

Their elders aren’t doing so well either.

“Baby boomers working longer hours, for less,” says a Financial Times headline. What do you expect? Their currency is going down in value. Their customers are disappearing. Their retirement savings disappeared with housing prices. They can’t even borrow money anymore.

David Rosenberg:

“Now that lenders have started to respond to their record-high delinquency rates by rationing credit, a mad scramble for cash is occurring to replace the loans – food stamp usage is up 22% year-over-year, pawn shop business is up nearly 40%, and there is a tidal wave of applications for Social Security disability benefits that are not explained alone by workplace mishaps.”

Boomers have no choice. They need money. So they work harder, and longer. And they get paid less. Why? Because prices are falling. Even the price of labor. It’s a deflationary world.

Meanwhile, The New York Times reports, “China consolidates its lead in global trade.”

This headline is a little like the announcement that consumer spending is a bigger part of the economy. It might lead you to think that global trade is growing – or, at least that the Chinese part of global trade is growing. Not at all! Global trade is still shrinking. Chinese exports too. It’s just that China’s part of the global marketplace is increasing…because America and Europe are losing market share. China is gaining market share because it competes on price. And price competition is what is driving this market.

No discount? No sale!

Power and wealth are shifting east. No doubt about it. The Chinese took over the Hummer this week. And they are even building a ‘big plane’ – the C919 – to compete against Boeing and Airbus.

Is there any business they can’t compete in? We don’t know…but we’re counting on them to stay out of financial publishing at least until we retire!

The other big news is that gold has reached a new high. It rose yesterday to $1065 yesterday – an increase of $7.

“Why so high…so fast?” That was the question in our Daily Reckoning analyst meeting this morning.

“In the last big boom in gold – in the late ’70s – gold followed inflation…and the central bank. Investors saw inflation increasing. And they saw the central bank failing to react fast enough. They bought gold to protect themselves.

“But now…there is no inflation. And central banks are alert to the problem. They haven’t raised rates…but they don’t need to. There’s no need to protect against a problem that doesn’t exist. So what are investors trying to protect against?”

No one at the table had a good answer.

“They’re just looking ahead to when all that money the feds put in the system finally shows up in inflation. If you believe there’s a real recovery you might think it is coming soon…” said one analyst.

“They’re worried about a crash of the dollar…they’re just buying gold because it’s the anti-dollar…” said another.

“Maybe the Chinese are switching their reserves to gold…just like they said they would. And maybe instead of buying at below $1,000 they’re buying quietly below $1,100…” offered another.

“Gold is being re-monetized,” says MoneyWeek editor Simone Wapler. “All the world’s paper monies are losing value – and credibility. There’s a race to the bottom as they try to devalue their currencies.”

All countries are fighting for market share. In a price-sensitive world, they increase exports by cutting prices. And the fastest – sometimes, the only – way to do that is by devaluing the currency. But when one nation devalues – say, by printing extra money – other nations must devalue too in order to stay competitive.

What can they all devalue against?

“Gold is rediscovering its old role,” says Simone. “Once again, it is the way we preserve wealth and keep track of what things are worth.”

Your editor had his say too.

“Most people are buying gold only because gold is going up. Maybe they realize that the world’s financial system is in a period of crisis. They see the central banks are being derelict in their duty. Instead of protecting the value of their paper money the bankers are intentionally undermining it. They figure that if the central banks aren’t doing their jobs – that is, if they aren’t maintaining a reserve of real money – they’ll have to do it themselves. Each person now needs to be his own central bank, with his own reserve of real wealth – gold.

“Or maybe investors don’t see that all. Maybe they just see the price going up and they want to hitch a ride. What else can they buy that has been going up for the last 10 years? Gold is up $150 – about 17% – in the last 6 months. It’s up 27% in the last year. It’s up 300% since 1999.”

Gold is in a bull market. How far it will go and how long it takes it to get where it is going, no one knows. No one knows, either, how many scrapes and setbacks it will suffer before it finally reaches its destination.

But it is a bull market. And you don’t ask questions in a bull market. You get on board and ride it to the end.

Then, you wished you had asked some questions.

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