It is raining in France this morning. It rained yesterday morning, too. The farmers all walk around with broad smiles. They had been scowling at the prospect of another dry year.

Meanwhile, back in America, today is a holiday. We can't remember what holiday it is, but we've been told it is one.

So, we take advantage of the lull in market activity to check out our Five Big Es.

"Wait a minute," skeptics will say. "What difference do these big trends make? They're so long term you can't really trade them, can you?"

Well, yes and no. It may be difficult to make money from the decline of Western civilization, but some of these big trends are more immediate and investment worthy than others. The important thing, from a financial point of view, is that if you're investing against these trends, you need to be very careful.
 
Take the world's Experimental money system, for example. History tells us that it will collapse some day. The dollar has lost half its value since Alan Greenspan took over at the Fed. Measured by gold, the dollar's decline is picking up speed. Does this mean you can't make money buying 30-year U.S. Treasury bonds yielding 5% interest? No, but you should be aware that the currency in which those bonds is quoted is likely to be worth a whole lot less in 2036 than it is today - if it exists at all!

Another example: The price of oil goes up and down. Money is made in both directions. We don't know what the price of oil will be a year from now, but if you're planning your life around $2-a-gallon gasoline, you might want to reconsider. Every year that goes by, there is less easily- accessed oil and more people who want it.

On the other hand, it's hard to know when the U.S. Empire will peak out, or what it will mean to anyone...except that it might help explain some things. Americans seem eager for war, we notice. In no other country we know does talk of war find such a ready audience.

The frogs do not ask for a "guerre" against diabetes. The huns do not build a "wehrmacht" to fight hunger, drugs, or poverty. No, war is serious business in other countries. They've had more, and bitter experience with it. People don't use the word 'war' so casually...so nonchalantly. Only America declares a jihad against everything that displeases it. And only America sends troops all over the world in pursuit of whatever foreign policy goals it fancies at the moment.

The U.S. now spends as much on "defense" as the rest of the world combined. You don't spend that kind of money on defense - not unless you expect to take on the entire world. No, you spend the money because you are an empire. And empires must throw their weight around; otherwise they wouldn't be empires. Americans favor war because they think war favors them. They have the best army on the planet; they can't wait to use it.

But using military force is extremely costly. An empire has to do it, to project its own power, maintain order throughout the world, and hold onto its position as cock of the global walk. And since it has to spend the money, it has to go broke.

Meanwhile, other countries are taking advantage of the situation. While America pays for world order, Asia steps up the Exodus of power and money in its direction. "China seeking auto industry, piece by piece," says a NY Times headline. "China plans to buy a sophisticated engine plant in Brazil," the article explains, "take it apart, ship it to China and then put it back together again." Bit by bit, Asia is gaining economic power. Can military power be far behind?

Finally, the Economic cycle is the one trend most likely to do most harm to investors in the short run. At today's prices, U.S. stocks are unlikely to provide much in the way of real returns for the next 10 years or so. That is true of houses, too.

Stocks are holding at their 1997 levels. Houses are at least twice as high. But house prices seem on the verge of tumbling. In the 1990s, houses in the Los Angeles area fell nearly 30% when the aerospace industry went into a slump. People lost jobs; house prices fell. The downturn was cushioned by falling interest rates - especially after the dot.com bubble collapsed. We have full employment - albeit at low wages - but interest rates are not falling, they're rising. And now, on about the same incomes as 10 or 20 years ago, consumers are spending twice as much on housing. One out of every five homeowners in California spends more than half his income on housing. The typical mortgage in the Bay Area is $2,867 - more than twice the typical rent of $1,324.

What will happen when the cycle turns and the ATM machine stops working in the bedroom? Will they drop their houses like dot.coms? Will the marginal buyers go back to renting? Speculators could get hit hard; house prices might drop 30% or more...and stay down.

Bill Bonner, back in France with more views...
 
*** We left London at 8:00 AM and drove down to the Channel Tunnel. We boarded the train at about 10:45 and got to Calais about 30 minutes later. It was the first time we've taken the Channel Tunnel - in a car. You just drive onto the train and stay in your car. It's very efficient and easy. From Calais, it was another seven-hour drive down to Ouzilly, where we are spending the next two weeks.

The drive provided us with plenty of time to talk.

"I don't think it's as gloomy a picture as you portray it," began Elizabeth. "It may be true that relatively speaking the East is growing faster than the West, but they have so much distance to cover, it will be a long time before they catch up. And in so many of those countries there's no real law and order. That's what is really nice about the West.

"It's not that we have factories or banks or internal combustion engines. They can imitate all those things in Shanghai. But we have something that took hundreds or thousands of years to accumulate. People call it 'democracy,' but it's not really the fact that there are voters and elections...it's the fact that you can generally trust that the land you own will stay yours and that no one will take it away from you arbitrarily, you won't be rounded up by the police because you are a member of some group and for the most part, you won't be shot down in some tribal gang war.

"But the globalized economy doesn't care if you're a democracy or not. People don't care what system of government or society you have. They just care how good the product is, and how expensive it is.

"And now, the problem in America is that too many people have had it so easy for so long, they no longer think they really have to save money, or really learn anything. What we're seeing is that the hourly wage earners are having trouble competing with the hourly wage earners in India and China, because they don't really have anything to offer an employer that is any better than an hourly worker in Asia.

"And the only way they can possibly expect to earn more money is to go to school and learn something. I guess it makes sense; if the Asians has access to the same amount of capital and technology, the only reason an employer would hire an American at much higher wages would be if he had better skills - that is, if he could turn out more or better products.

"I wonder how they are going to do that."

*** It will be tough. Excerpt from the NY Times article: "Mr. Yin has no doubts that China can also compete with the United States. "Americans work five days a week, we in China work seven days," he said. "Americans work eight hours a day, and we work 16 hours."

*** Economist Paul Craig Roberts offers some more thoughts on the Exodus of power and money to the East:

"Occasionally, real information escapes the spin machine. The National  Association of Manufacturers, one of outsourcing's greatest boosters, has just released a report: 'U.S. Manufacturing Innovation at Risk,' by economists Joel Popkin and Kathryn Kobe. The economists find that U.S. industry investment in research and development is not languishing after all. It just appears to be languishing, because it is rapidly being shifted overseas. The report states, 'Funds provided for foreign-performed R&D have grown by almost 73 percent between 1999 and 2003, with a 36 percent increase in the number of firms funding foreign R&D.'

"U.S. industry is still investing in R&D after all; it is just not hiring

Americans to do the R&D. U.S. manufacturers still make things, only less and less in America with American labor. U.S. manufacturers still hire engineers, only they are foreign ones, not American ones.

"In other words, everything is fine for U.S. manufacturers. It is just their former American work force that is in the doldrums. As these Americans happen to be customers for U.S. manufacturers, U.S. brand names will gradually lose their U.S. market. U.S. household median income has fallen for the past five years. Consumer demand has been kept alive by consumers spending their savings and home equity and going deeper into debt. It is not possible for debt to forever rise faster than income."

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