“Do you really think the end is nigh?”

We were on the phone with an Irish radio station this morning. We explained our thoughts:

“You can never know when important trends will turn around, but there is reason to worry that both the U.S. Empire and the U.S. economy are peaking out. When the numbers are finally tallied, we think they'll show a decline in real incomes for Americans in 2005 - coincident with a negative savings rate. We haven't seen anything like this since the Great Depression. In the depression, it was obvious why people were drawing down their savings: they needed the money to eat. A quarter of the workforce was out of a job.

“But why would the savings rate go negative in 2005, when the U.S. economy is said to be expanding and everyone is supposed to be getting rich? I'll tell you why. [Remember we were on the radio; a certain amount of glib bluster is de rigueur] It's because the whole thing is a fraud. Only the rich are getting richer [we thought this populist demagoguery might have a certain appeal during drive-time].

“At the middle and lower ends of the economic food chain, people are having a hard time making ends meet. The only way they can keep up with the Joneses is by borrowing. In 2005, about $200 billion was “taken out” of house-price equity. But it looks as though these marginal borrowers are going to be squeezed from several directions in 2006. Interest rates are rising. Lenders are being forced to increase minimum payments and stiffen credit policies. Energy costs are twice what they were a year ago. And the hottest housing markets seem to be cooling off.”

Also on the line was the station's pet economist from a university in Dublin. He offered listeners a rebuttal: “Yes, Americans have borrowed too much. But the United States has a huge, rich, dynamic economy with many assets overseas, etc. Besides, some nations operate with a negative balance of trade for many years. And people have been predicting an imperial over-stretch for a long time. Not a very original idea. We haven't read Mr. Bonner's book, but...” We tried to follow his point or his logic, but we couldn't keep up with it. As near as we could tell, he hadn't read our book, but he was sure he wouldn't like it.

“What do you have to say to that, Mr. Bonner?” asked the show's host.

What could we say, dear reader? For a long moment, we couldn't think of a single sentence that didn't have a four-letter word in it. But we doubted that that was the sort of honest response the station wanted. So, we gave more figures...more talk of trade deficits and other economic mumbo-jumbo.

We were just about to explain the difference between productive debt and debt used for consumption, but our time was up. It was on to something more important - the sports coverage!

The banking industry has done a great thing, says another smug economist from the American Banking Association. By encouraging people to borrow against their houses it has helped people “free up illiquid assets.” In 2005, they helped people “free up” $200 billion worth of illiquid assets. Surely, they should get a Nobel Peace Prize for that! Imagine all those poor people who have been liberated from their own houses. Last year, they owned a roof over their heads, or “illiquid asset.” Now, they own last year's hit CDs and have fond memories of last year's vacations in Las Vegas. Of course, they now have a deeper, more meaningful relationship with a lending institution, too.

As recently as the first Reagan administration, America's personal savings rate was nearly 10%. By the first Bush administration it had fallen closer to 5%.In the second Bush administration, the rate has gone negative...to minus 0.20% in November. Over the last five years, debt levels in America grew twice as fast as incomes. Now, “savings have practically disappeared,” says Paul Volcker. We have, “an economy on thin ice,” says the former Fed chairman.

“On thin ice,” is a metaphor suitable to the season and the situation. It does not tell us if the nights will grow colder or warmer. It does not tell us when the ice will crack. The end may or may not be nigh, but readers are reminded to be careful.

*** Wow! Look at the gold price. Instead of falling back in a correction, it has soared to a new high - over $541, a price not seen since March of 1981. Back then, of course, gold was on the way down, after hitting a high of $830 a year earlier. Now, gold is on the way up. Will we get no further opportunity to get in below $500? We don't know.

*** Gold is rising against all currencies, but it is rising against the dollar slightly more than against the euro. It looks as though the dollar's rally may be over. This may not be the first time we've said this and it may not be the last, but our hunch is that 2006 will not be a good year for the dollar. The Fed is unlikely to continue raising rates. Consumers are under pressure. And China just announced that it would lighten up on its dollar holdings. Sell the dollar, dear reader.

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