"Watch the dollar," we warned on Friday morning. By Friday evening it had dropped to a 20-month low...trading at $1.31 per euro. In gold terms, the number of dollars it took to buy an ounce of gold rose to 640.

Just a few days ago we wondered if we would ever see $600 gold again in our lifetimes. We still wonder...but the odds are increasing that we won't. Currencies move up and down; but over time, paper-based money goes down more often than up. And all paper money ever invented, up until now, has eventually gone the way of all forms of paper - to the trash bin.

While its money deteriorates, the U.S. economy shows more and more signs of weakness. The yield curve is still inverted, meaning the U.S. treasury can borrow for ten years or more and pay a lower interest rate than it gives to very short-term depositors. This is an unusual thing; why would anyone lend long for less than he would lend short? Risks increase with time. Just look at what has happened to the dollar. In the last hundred years, it lost about 95% of its purchasing power. In the last 20 years, it has been cut in half.

When George W. Bush took up his tasks in the White House, you could still take 270 paper dollars to your coin dealer and exchange them for a one-ounce gold coin. Now, you have to take more than twice as many. And how much did it cost to fill up your car in 2000? We don't recall exactly, but it was probably less than half what it costs today. And housing...well, there too, your dollars barely buy half the house today that they would have bought in 2000.

And yet, lenders still lend at 5%...6% interest, knowing that they will get dollars of less value back. The longer the term of the loan, the more likely that the dollars they get back with be significantly less valuable than the ones they originally let out.

The whole thing is remarkable. At a 5% nominal interest rate, a lender earns only about 3% after 'ordinary' cost-of-living inflation. Plus, depending on his situation, he pays about 2% in income taxes - leaving him actual, after-tax earnings of 1% per year. And yet, each year the dollar could easily lose 1% of its value against other currencies...or against gold...without even making the back pages of a financial newspaper.

In addition to the inverted yield curve, the index of leading indicators has also turned down. And hardly a day goes by without more evidence that housing is in trouble.

"Homebuyers getting cold feet," is a headline at Netscape news this morning. "Just a year ago they couldn't wait to sign contracts. Now they can't wait to get out of them."

Unless it is some sort of mass illusion, everyone now knows that housing is weak. The homebuilding stocks are down sharply. Inventories are at records. Prices are soft; sellers are offering incentives to try to move the merchandise.

Some super-hot areas - such as Las Vegas - have gone stone cold; whole neighborhoods are said to be 'ghost towns,' with For Sale signs in front of empty houses up and down the block.

So far, however, few people expect the slowdown to do much damage. Householders themselves show no sign of panic. From the retail sector comes news that the lumpen continue to spend. Sales on Thanksgiving weekend rose 19% from the year before. Sales on 'Black Friday' alone - which marks the beginning of the holiday shopping season - rose 6% over a year ago. Only Wal-Mart bucked the trend, with a tiny decline in same-store sales from the previous year. Householders may be on board the Titanic, but they're going to enjoy the trip!

This too is remarkable. Since '02 one of four new jobs has been created in the housing industry. What are those people going to do now that there are fewer nails to pound and less concrete to pour? We don't know...maybe they're trading derivatives.