"In the past three years America has been enjoying an unusual combination of low inflation and rapid growth," writes Anatole Kaletsky in the London Times. "This happy combination cannot continue much longer. In the months ahead, either inflation will continue to accelerate or economic growth will have to slow abruptly, to the point where unemployment starts rising and businesses start going bankrupt."

Our friend, Byron, believes bankruptcy is going to be a popular practice for lawyers in the years ahead, like IPOs and mergers and acquisitions in years past.

He has an explanation for the word, too. "Bankruptcy comes from ancient Rome," he points out. "Merchants used to operate from a 'bankus' - a sort of workbench or counter.  If they couldn't pay their bills, the local authorities would come over and break their bench - bankus ruptus. In England, they kept the bankruptcy procedures left behind by the Romans after they left, even the part where they sold the bankrupt person into slavery. Only, it wasn't slavery anymore, it was indentured servitude. And many were sold into indentured servitude in the colonies."

Byron blames it all on one of our Big E's - Energy.

"It's because of oil," he says. "We're at peak production right now. But there are five billion people who are looking forward to the life that we Americans now lead. In China alone, if people lived as we do, they'd consume 100 million barrels of oil a day. And here we are at maximum production and the whole world only puts out 84 million barrels. 

We keep telling these people that they should want what we have. Democracy. Capitalism. ATM machines on every corner. Who's going to tell them the bad news? They can never have it because there's not enough cheap oil. The fact is - they can't be us, because the Earth can't produce enough oil to allow everyone to live like us. In fact, we can't be like us either. At least, not all of us. What's going to happen is that the people who are now getting wealthy in the rest of the world are going to use the oil that lower- and middle-class Americans expected to use."

Many Americans won't be able to afford the new, higher prices of petroleum products. 

Meanwhile, in the Times, Anatole Kaletsky continues:

"The U.S. economy is now clearly slowing, and what started as an orderly retreat in the housing market is turning into a rout. Yet the slowdown in housing and consumption has come too late to prevent a steep increase in inflation. On Wednesday, U.S. government statisticians reported a further jump in inflation to 4.3 per cent. This was the highest inflation rate reported since 1991 (apart from a one-month blip after Hurricane Katrina)."

Kaletsky has been very bullish on the world economy. In fact, he has been engaged in open warfare with such well-known bears as Marc Faber, for example. Now, he seems to be reading the papers.

In the papers, the Associated Press tells us that existing and new house sales, combined, have been going down for the past seven months. "Area home prices drop," adds the Washington Post, noting that the median price of a house in nearby Loudon County, VA, is off 1.2% over the year before. To make sure we get the point, it has a photo of a man who is giving away a new car to whoever will buy his suburban house.

Nationwide, inventories are up; sales are down. Prices are falling in key areas, though they are still above a year ago on a countrywide basis. 

In Massachusetts, foreclosures are up 66%, says the Boston Globe.

And, we got word from a friend who is trying to sell his house in Santa Barbara that not a single person came to look at his pad in a two-week period.

Kaletsky goes on:

"Inflation in America is now running at a truly alarming 4.8 per cent. How can the Fed commit itself to price stability and rapid growth? How can it halve U.S. inflation from 4.5 to 2 per cent without allowing even a brief period of rising unemployment? Professor Bernanke offered no answers. If he performs these miracles, he will go down in history as an even greater financial wizard than Alan Greenspan. If he fails, he may be likened to another Bush appointee who promised painless victories without much idea of how to achieve them. Is Ben Bernanke the Fed's Donald Rumsfeld?"

*** The grand Exodus of money and power, from West to East. One of the biggest trends in economic history was the rise of the West - centered roughly in Manchester, England, and Manchester, New Hampshire - in the 18th century. Then, in the 19th century, all of Europe, and the European outposts in the New World, spurted ahead of the rest of the world. By the end of the 20th century, the average worker in Western Europe or the United States earned about 20 times as much per hour as a similar worker in China or India. 

But the averages masked the new trend. Today, wages in India and China are rising sharply. Those in America and Europe are stagnant. Yesterday's Financial Times tells us that real hourly incomes in America are lower today than they were five years ago. In India, they have almost doubled.

Meanwhile, China is growing faster than at any time in the last 10 years - with a GDP growth rate over 11%. India is not far behind. Both economies are graduating hundreds of thousands of new chemists and civil engineers, whereas American universities turn out young people trained in sports therapy and theatre design. And while both economies are plagued by the usual assortment of bullies and bureaucrats, Asian parasites are much cheaper than ours, which, along with low wages, gives them a tremendous advantage.

Is the Chinese economy dangerously exposed to a slowdown in U.S. consumption? Yes.  Is the Chinese economy laden with contradictions, obfuscations and swindles? Yes. Are the Indians burdened by inefficient transportation and nerve-fraying business frustrations? Yes. But if they had not these sorts of problems they would already be rich.  Instead, they are still poor, which is the source of their competitive advantage.

"Look," said a friend from India. "You're doing all this computer processing work in your business. And you're doing it in very expensive places, like London. I can put you in touch with people in India who can do it a lot cheaper. I mean, you pay an IT guy probably about $80,000 in the United States. In India, you can get someone just as competent for $20,000. Really, you should be outsourcing that kind of work."

That is what we are hearing. Other businessmen must be hearing the same thing. Who can resist? 

Will this trend end soon? Certainly, it will see some setbacks and countertrends.  Prosperity is a matter of more than just money. It will take time to knock down all the obstacles. But why should it end? We can think of no reason. What is happening is nothing more than a reversion to the historical mean - when people in Asia and people in Europe earned about the same thing. At least at the bottom, pressure from Asia should hold down wages in the West for another 20 or 30 years. And buying from Asia should push up prices for things that Asian labor cannot produce: oil, for example...and food, raw materials, Old Masters painting, antiques, and gold.

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