Money...money...money...

We know it's a rich man's world, but how rich is the rich man these days?

What's happened in the world of money since we've been away from it?

Well, on one hand, the Dow has gone up, up, and up; we just hope someone is holding on to the string, or this balloon might get away...or pop! Right now, we're not sure. When we checked on Friday, the Dow had risen almost to 13,000.

The metals are soaring too, with many base metals hitting new records and gold back up to nearly $700.

On the other hand, a fund manager who'd come to South America to look for bargains (and whom, by an odd coincidence, we know from London) had this to say:

"Bargains? Ha! There aren't any. There's so much money in funds that the managers just have to take what they can get. But the investors don't seem to care. They're pouring cash in faster than the managers can put it to work. And, of course, they all only want to invest in the funds AFTER the funds have made a lot of money. The whole thing is absurd.

"I travel all over the globe. When I was raising money in about 2003, there were plenty of good investments around. But then, I had a hard time getting investors to put in any money. Now, the investments I had targeted are up 100%, 200% and more...and investors are still giving us more money than we can handle. The only problem is we can't find investments that are bargains anymore."

Hedge funds took in more than $60 billion in new money in the first quarter. The International Herald Tribune reports that that's not only making hedge fund managers rich, with all the legal work involved in the hedge business, it's making the lawyers rich too.

What a delightful, degenerate economy! AP reports that three million manufacturing jobs have been lost in the United States since George W. Bush came into the White House. But who cares about making anything anymore? Who cares about actually creating the things that really make people wealthier? The money is not in making things...but in shuffling paper around.

Everyone is getting rich - providing financial services to everyone else, like people on an island making their livings by taking in each other's laundry. Let's see, we'll lend you money to buy a house. Then, you refinance the house with our friendly rivals down the street...and then you place the money with a private equity firm...that uses it to take a company private...paying off the shareholders...who take their loot and put it into a hedge fund that buys the shares of the same company when it comes back onto the public market! Whew!

What does it take to keep this grand money machine spinning?

Money supplies all over the world are increasing - 10% per annum in the United States, 10% in Europe, 14% in Asia. The hedge funds, mutual funds, private equity funds, investment banks - the green stuff is everywhere...and everywhere it is chasing more green stuff. The world has gone green.

"It's incredible," said our friend from London. "Everywhere I go I run into other investment managers, all looking for something - anything - that is still at a reasonable price. I was just in Zimbabwe, for example. Now, there at least you'd expect to get assets for nothing. The inflation rate is something like 100% per month, and nobody has anything.

"I went into one of the finest restaurants in Harare. I mean, this was a restaurant that used to be the best in all of Africa. But they gave me an old menu, listing an assortment of cakes and desserts - and when I asked for one, they said, 'I'm sorry, but we don't have that any more.' So I asked for something else, and they said, 'I'm sorry but we don' t have that any more, either.' So, I tried a third one and got the same reply. Finally, I asked, 'What DO you have?' And they said, 'White bread...'

"And this was in the best hotel in the city. A fine hotel. But the city's sewage treatment plant had collapsed and the raw sewage was running into the same river where they took in the city's water supplies. So, even in the best hotel in the city, the water was a little brown and smelly...and you were afraid to even take a bath.

"And then I'm sitting at the table in the restaurant, and whom do I see at the other tables? Other fund managers...also scouting around for bargains. There is just so much money floating around the world, no one knows what to do with it."

Against this huge increase in the supply of cash and credit is a relatively modest increase in actual wealth, if any at all. Of course, we don't know how much, because our measuring stick has such a wiggle to it. We live in an era of 'managed' currencies. We measure our wealth...and our profits...in managed currencies. And we have faith that the managers know what they are doing.

When that faith goes...so goes the value of our currencies...and so goes much of our wealth.

Practically unnoticed in the worldwide euphoria of rising prices was the falling dollar. In the two weeks we were in South America, the dollar lost about 2% of its value against the euro. Against gold, it lost 3%. Measured against gold or the euro, Americans - even if they had all their money in the Dow - got poorer while we were away.

Someday, all that liquidity is going to turn a little smelly...like the Harare sewage.

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