"Time to Admit Defeat?" is the headline.

The cover of the English magazine, "The Week," has an interesting picture. It is a picture of the marines raising the flag at Iwo Jima. But the flag is white.

"Baghdad is under siege," is the cover headline on yesterday's Independent.

The story continues:

"Sunni insurgents have cut the roads linking the city to the rest of Iraq. The country is being partitioned as militiamen fight bloody battles for control of towns and villages north and south of the capital.

"As American and British political leaders argue over responsibility for the crisis in Iraq, the country has taken another lurch towards disintegration..."

The subject is also the cover story of this week's Economist. Over a photo of an Iraqi soldier running in the desert is the headline: "Cut and run?"

Even the International Herald Tribune, an American rag, notices the problem. "Iraq nearing chaos, U.S. Army says."

Kicking butts all over the world is not as easy as it looks. But fortunately the Iraq misadventure never mattered anyway. The poor desert nation never posed any threat to the empire. It was just a distraction...an expensive one.

The real threat to the empire is financial. Thanks partly to the cost of the war in Iraq - now estimated at more than $1 trillion - the empire loses about $70 million per hour. That's the annual current account deficit divided by the number of hours in a year - including Sundays and holidays.

It's a wonder that these losses have not yet been reflected in the value of the U.S. dollar. Miraculously, it continues to defy the gravity of the situation.

For several years now, we here at the Daily Reckoning have been expecting the dollar to fall...and we've been in good company. Warren Buffet and Robert Rubin have also been betting against the dollar. Buffet lost $1 billion last year on his foreign currency bet. Rubin lost $1 million. What did we lose? Well, we don't know...we didn't pay that close attention.

Now the dollar bears are all raising their white flags. "The market can remain irrational longer than you can remain solvent," said Keynes. Most speculators have decided to stop fighting it; they'd rather be solvent than right.

But gravity still works, and an economy that is losing $800 billion in current account deficits each year is not an economy whose currency you can trust.

Yesterday, the euro edged up. And the anti-dollar - gold - shot up $12.50, to $619. The correction in gold could be over. We may see gold below $600 tomorrow...or never again in our lifetimes.

Even at $600, the total world supply of gold above ground represents only 3% of U.S. dollar-based financial assets. As recently as 1980, the figure was 29 percent.

We don't know if we are at the end of the dollar's bull market run. What we do know is that we are not at the beginning.

*** Our friend Dan Ferris sends us this brief response to the piece about Exxon going...er...broke.

"After all, if peak oil is true, isn't it a good thing to own 70+ billion barrels of oil?

"Good luck making money betting against the largest, lowest cost producer of a product the world grinds to a halt without. At around 6 times pretax earnings, Exxon is like a AAA bond yielding 16%, with a coupon that grows whether oil is $70 or $7. It made 12.1% on equity in 1999, the year oil dropped down around $10 a barrel. It has paid a dividend every year for over 100 years. It has raised its dividend every year since 1983. It has returned more than 14% a year to investors for more than 50 years. It has $32 billion in unrestricted cash on its balance sheet, and it generated $29 billion of free cash flow the last four quarters.

"At that rate, it could easily finance enough debt to buy Microsoft - and still pay out more than $10 billion a year to shareholders. It is one of 8 AAA-rated public companies in existence. (BRKA, TM, ADP, JNJ, UPS, PFE and GE are the other seven.) Earnings cover fixed charges more than 50 times over, and that's with an effective tax rate exceeding 40%.

"ExxonMobil is not going broke. It'll have no trouble hitting $100/share in the next year or two. It's a no-brainer. If peak oil were right, which it's not, the stock would be a no-brainer to go to $200 at some point in the near future, as the world runs out of the product it owns more of than just about anybody else.

"P.S. Peak oil repeals the laws of economics, and endows prognosticators with knowledge of the future that no one has."

*** It's a "war against poor people," says colleague Dan Ferris. Dan is talking about the campaign against Wal-Mart. All over America, people are bad-mouthing the firm that has probably done more to help the poor than all government programs put together.

We wondered how people at the bottom of the income pyramid kept going. Their earnings have gone - more or less - nowhere since 1971. But their expenses have gone up. How have they done it?

Credit is one answer. The lending industry found more and innovative new ways to lend them money. Where credit was offered, it was taken. The lower income levels previously had to pay cash...because no one would want to extend credit to people whose finances were so marginal. Now, even jailbirds and bankrupts can get mortgages.

But there is more to the story. Down at the low end of the lumpen, people shop at Wal-Mart. And the big retailer saves them money. "[A] study by UBS/Warburg found Wal-Mart grocery prices were 17%-20% lower than other supermarkets," writes Dan. "Wal-Markt can save the average family more than $2,300 per year. If you're making $200,000 a year, maybe this doesn't mean much to you. But if you're making less than $27,000 a year, an extra $2,300 is equal to a month's pay or more."

In other words, Wal-Mart alone can boost a marginal family's spending power by 10%...or more. This is no small feat. But then, Wal-Mart is nothing if not impressive. It is the largest private employer in the world
- with 1.8 million people working for it worldwide, more than 1.3 million in the United States. It is responsible for a 3.1% lower consumer price index, a 0.9% higher wage base, a 1.3% higher total real disposable income and an unemployment rate that is 0.14% lower.

You'd think people would be grateful. Instead, the well-to-do conspire to keep Wal-Mart stores away. Lobbying groups form to complain and harass the company. Congressmen fulminate against it. Legislatures try to put it out of business.

The logic now being employed to prevent imports from overseas is also directed at America's most successful company. 'Fair' this and 'fair' that they call for. Competitors want to force Wal-Mart to charge higher prices. Labor unions want to force it to pay higher wages - even though it already pays much more than McDonald's, H&R Block, 7-Eleven, and other low-wage employers.

Employees themselves seem to like the place, says Dan. When Wal-Mart opened in Chicago it advertised for 325 jobs. It got 25,000 applicants. In Oakland, CA, 12,000 people showed up for 350 available jobs.

Wal-Mart is a great company, Dan concludes. And it has made investors millions of dollars. But what will be 'the next Wal-Mart' he wonders. We won't give it away here, but Dan thinks he has a candidate. [need a link]

*** What if Danny Ortega wins the election? A reader asked why we were still bullish on real estate in Nicaragua. Danny Ortega, a former revolutionary - and still a socialist - is running for president...and he has a good chance of winning.

But our sources in the country tell us that Danny has calmed down. There is so much tourist and development money pouring into the country that he won't want to risk upsetting things too much.

Of course, anything could happen. And we are the last people to underestimate the ability of politicians to mess up an economy. Still, we take our chances everywhere. From what we can tell, Danny Ortega is not much greater risk than any other.

Meanwhile, we think there is a major trend underway. Americans of a certain age and certain financial condition are studying their alternatives. They want to live a dream retirement...in a tropical paradise.

Where? How? When? The last question is the easiest to answer: now. The boomers are watching their waists expand and their life expectancies contract. They don't want to waste any of what they've got left. But that merely makes the other two questions riper than ever. Where? Nicaragua has some of the most attractive coastal areas in the world. How? It is also still among the cheapest of the alternatives.

Yes...a lot could go wrong and probably will. But it still looks like a decent bet to us.

 *** Reuters reports, "Research firm Morningstar Inc. polled 600 advisers in August and found that 65 percent of them expect more than double-digit growth in alternative investments, which include hedge funds."

"We were surprised to find that the majority of advisers expect double-digit growth in alternative assets under management every year for the next five years," said Steve Deutsch, director of separate accounts and managed investments at Morningstar.

These expectations might be 'unrealistic,' says the Reuters report.

Unrealistic? They are hallucinating. This year hedge funds actually underperformed mutual funds; hedge funds made about 7% in the first nine months of the year, while mutual funds did about 8 percent. Compare both of those to the S&P, which is up 12 percent.

Double-digit gains? It is possible...but very unlikely. With 9,000 funds, odds are they are going to generally mirror the performance of the broad market. How could they not? They ARE the market. But investors are likely to do worse, because the hedge funds charge such high fees. And if the markets go down, hedge funds are likely to go down further and faster, because they tend to be leveraged.

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