Is it really over?  Maybe...

We read yesterday that mortgage applications hit a three-year low.   This is bad news for the credit industry - which depends on borrowers like spiders depend on flies.  If people resist being lured into their webs of debt…the whole thing is over.  Not just the bubble in real estate prices…but the whole puffed up, pretentious, conceited, arriviste U.S. economy…

The economy is growing, say the economists.  The debt doesn't matter…the deficit is no worry…we don't need manufacturing…don't need no stinkin' savings… - everything's gonna be all right.  Everything's gonna be all right.  Everything's gonna be all right…no woman no cry…

But the ‘miracle' of the miracle economy 2000-2005 was not that it hit upon a brand new model…with high debt levels, a persistent trade deficit, no savings, and highly profitable ‘platform' companies that do no manufacturing.  Behind the miracle was a booming property market that pumped trillions of dollars into the economy and created millions of new jobs. 

Housing is essentially a consumer item, not a productive one.  People live in bigger houses that cost more money to buy…and to maintain.  A major part of the ‘growth' of the last five years came just from this new consumption.  People became real estate speculators…investors…developers or sales agents.  Others made their livings putting in granite countertops and new bathrooms.  Still others sold household furnishings and home entertainment centers.

When this boom in real estate property ends, then…what will happen to the miracle?  What will keep the U.S. economy going? 

The top-performing sector this year was our favorite metal - gold, up 26.8%.  The next was health care, plus 21.4%.  Then, there is the insurance industry that registered a 16.9% gain. 

Gold is a special case.  Buying gold ads nothing to the economy.  It is just a way of protecting your money.  So is the insurance industry.  And health care?  Is it not just another form of domestic consumption?   But where does the money come from?  Whence cometh the purchasing power to consume?  Ah…there's the rub…there's the fly in the ointment…there's the weasel in the woodpile…

The rich are getting richer.  But the middle and lower classes have less money to consume this year than they did the last.   If we're right, there will soon come a time when Americans will no longer be able to say that they are the richest people on the planet.  Instead, there will still be plenty of rich people in the U.S.  The rest of the population will be no richer than people in other countries.  The advantage from being born in America will have disappeared in the globalized labor market. 

Here in Nicaragua, we are looking at both the past and the future.  The past is all around us.  People cut fields by hand and drive ox carts to market.  But the future is here too…because rich people in Nicaragua can live as well or better than anywhere on the planet.  There are fine restaurants…beautiful beaches…the latest technology and entertainment.
Plus, you don't have to be Bill Gates to afford a staff of domestics. Lumpen rich people have drivers…maids… gardeners…secretaries. 

Will it be so different in the U.S….when labor competition lowers the cost of household help?   Will the rich be able to live like rich people again…even while the country as a whole loses ground?

Or will the lower classes despair and revolt?  Will they stop envying the rich and, instead, begin to eat them?

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