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The Daily Reckoning Friday, October 30, 2009 The US stock market welcomes Halloween with a frightfully strong performance, "Generation iPod" faces tough times here at home... While Generations "X" and "Y" lead the Emerging Markets to greater prosperity... Joel Bowman, reporting from the golden sands of Australia's Gold Coast... We've been wondering in this space recently about the kind of world the next generation will inherit. Clearly the trend for the long haul points to a shift of power, and a migration of wealth, from West to East. As we routinely report, the roaring Asian economies have amassed enormous piles of foreign reserves, much of it in US Treasuries. In part due to this shift, these economies - China, India, Brazil, etc. - command an increasingly important role in the geopolitical arena. In addition, these New Economies on the Block are forging important trade ties with each other and inking deals to secure their mutually beneficial future, ex-US. The United States, meanwhile, is up to its ears in ever-mounting debt...both to its creditor nations in the Middle and Far East and, to an even larger extent, to its own citizens. And so we ask ourselves, will the young Johnnie and Jenny Smiths of the West be able to bluff their way through the next round of negotiations with a pair of twos? Or will the Changs, Patels and Ahmeds of the world call their bluff and take them to the cleaners? Unfortunately, the trouble started for Generation iPod before they even had a chance to cause it for themselves. "Like America itself," observes Bill Bonner, "[Young Americans] are in danger of finding themselves slipping downhill. Instead of expecting things to get better, they may find it hard even to hold onto what they've got. Instead of the 'Morning in America' that Ronald Reagan promised, they may find that it seems more like evening, both in their personal as well as their national lives." Much of America's international influence was acquired during a time when the dollar roamed free and easy as the world's reserve currency. French President Charles De Gaulle called it an "extraordinary privilege." At its height, the greenback commanded a magisterial awe and its position was largely considered unchallengeable. But no challenge is too great for the mighty US government...especially the challenge to debase its own currency. It is true that extraordinary privileges carry extraordinary responsibilities. Within a single generation, the irresponsible goons in charge of preserving the dollar's integrity had destroyed almost all of its purchasing power. Measured against gold, it has slumped some 97% since Nixon closed the gold window in '71. And now, when the Treasury Secretary of the United States of America tells a classroom of Chinese university students that his nation's currency is trustworthy and reliable, they laugh in his face. Then, on top of an increasingly worthless currency, Generation iPod also inherits about a quarter of a million dollars each in unfunded Social Security and healthcare obligations, the overdue infrastructure bills of a crumbling nation, a couple of distant wars to fight and die in and a world full of disgruntled foreign creditors. Is there any hope? Opined John Mauldin on the subject in Tuesday's issue: "It is not the times which dictate the man (or daughter!), but the response of the man which dictates his own time. Today has a brighter future for someone young than any other time in history, whether they are in the US or Brazil or China. They just have to seize it..." Echoes Bill, "The real advantage in life is having the gumption to get on with it; no one knows where that comes from." Indeed, history provides us with countless examples of individuals triumphing over adversity. A hard working American student has every chance to succeed in life, as does a hard working Asian student. It's just that, on the whole, graduating classes of Asian engineers and computer programmers are far more diligent than graduating classes of Western feminist film studies students. Taiwanese university graduates, for example, would happily take on the workload of most western jobs as a vacation, never mind as a vocation. The forty-hour workweek (35 for our French readers) is something students here manage between classes...and cram sessions...and helping run the family business...and music lessons...and English school in the afternoons and evenings. Not only have the Asian countries already outworked the west over the past generation - by a measure significant enough to now own virtually all of the western countries' debts - but they continue to up the ante even now. They have raised the bar, in other words, and they are raising it still. A generation ago, Mao Tse-Tung did his people a huge favor and finally died. His successor, Deng Xiaoping then told the Chinese masses not to fear wealth and that, in fact, to get rich was "glorious." It was a stark contrast to the self-immolating edicts spewed forth from Mao. The people rejoiced...and got to work. Last year, China created millionaires at the second fastest rate of any nation on the planet. Only India outpaced her. Meanwhile, America "demoted" millionaires quicker than any other country could manage. England was next on that dubious accolade. --- Introducing The Richebächer Society --- Secretive Society of economists, market players, and world-class researchers and analysts reveal... The TRIPLE TIMEBOMB That Makes Market Recovery Almost IMPOSSIBLE in 2009 or 2010... but that could still make a few people very rich! Elite alliance of experts warn: don't hold your breath waiting for a recovery this year or even in 2010. The three toxic timebombs they name below make a quick rebound next to impossible. Yet, they also name seven "Super Shields" you can use to safeguard against further losses... plus at least five surprising "long" plays you can still use - even now - to get very rich. Read On Here. --------------------------------------------------------------- The people in this region of the world are hungry...and they are only now beginning to taste the fruits of their labor. As finite resources - energy, food, land, water - stretch over the coming years to meet exponentially growing demand, Generation iPod needs at least to know what they are up against in the scramble to stake their claims. And, not unlike the Eastern generations of yore, they must work hard to succeed, despite the impediments their government impose. This unfolding reversal of fortune between the West and East does not simply suggest that American college students might face a less inviting future than their parents faced. It also suggests that investors might find a more inviting future in the Emerging Markets than they will face in the Developed Markets. Chris Mayer, editor of Mayer's Special Situations, explored this theme in yesterday's edition of The 5-Minute Forecast... Young populations predict strong economic growth. A young population means that most people are of working age as a percentage of total population. The emerging markets and developed markets are on the verge of trading places, as this next chart, from the fund Absolute Return, shows: This doesn't mean all emerging markets have young populations. If you look at the so-called dependency ratios by country, you see that Russia and China quickly get old. In fact, their dependency ratios will surpass the UK's over the next two decades. The really young populations, at least among the big emerging markets, are in India and Brazil. This chart, again from Absolute Return, shows you how many people are aged 65 or older for every 100 people aged 15-64. So if the ratio is 40, it means that there are 40 people aged 65 or older for every 100 people aged 15-64 (the working-age population). Low numbers mean lots of working people supporting the elderly. Higher numbers mean there are fewer people working to support the elderly. The theory goes that the younger populations with lower dependency issues will grow faster than those older populations. So looking at this chart, you can see the clear winners through 2030 in the demographic game - India and Brazil. The US, perhaps surprisingly, doesn't look so bad. Of course, the ages here are somewhat arbitrary. It seems to me that one way out of the problem is that people simply work longer. Why retire at 65? [Eric's Note: All those young workers will need to eat, of course. And as they become more prosperous they will want to eat more...and better. This trend will provide a number of interesting investment opportunities, according to Chris. In particular, many different types of agriculture-focused investments should thrive. But water is also a big part of this picture, Chris explains, and one of the most compelling long-term plays on Emerging Market growth. If you'd like to learn more about the logic and deep research behind Chris' recommendations, take a peek at his premium investment service, Mayer's Special Situations. For a limited time, you can "test drive" this service for just one dollar.] Try Mayer's Special Situations for Just One Dollar --------------------------------------------------------------- The Daily Reckoning PRESENTS: Women are from Venus; men are from Mars; debts are from Washington...as Bill Bonner explains below. Actually, Bill doesn't say a word about women, Venus, men or Mars. But he does spill quite a bit of ink examining debts and Washington and the futility of government bailouts. Read on.... The Kiss of Debt By Bill Bonner Gualfin, Argentina Regular readers of this space will recognize this as the third in a series. Irregular readers will not recognize it at all. They will look at us as though we had come from Mars. Earthlings are all convinced that a financial crisis of cosmic proportions befell the planet last fall. Had the authorities failed to act with determination and speed, it would have been the end of the world. In the popular mind the politicians have saved capitalism from its own excesses. Our views are different, but not extra-terrestrial. Once upon a time, not so long ago, they were even respectable. The gist of our message two weeks ago was that debt is dangerous. It feels good at first. But give a society too much debt - either in its private sector or the public sphere - and someone's going to get killed. That's why the present situation is such a delight to serious economists; it offers more data points. We get to see how much straw the feds can add before the poor camel's back breaks. What's the best way to get through a debt crisis? Straight through was our advice last week. For at least a thousand years, the business cycle went round and round without help from central bankers or economists. It is only since these geniuses have been on the case that really serious problems have arisen. The Panic of 1920 - in which the US government did nothing but cut taxes and spending - was quickly forgotten. The Panic of 1929, on the other hand, was followed by massive rigging and jiving by the authorities. It took 20 years and a world war to overcome; today it is still remembered today as the Great Depression. Martin Wolf, speaking, gravely, for the world's intelligentsia in The Financial Times last week, proclaimed that: "the only thing worse than rescuing the system would have been not rescuing it." But he is wrong; of all the many blessings economists may bestow upon a grateful people, improving the economy is not one of them. An economy is a natural thing. It can be improved by the striving of entrepreneurs, the prudence of bankers, and the sweating of field hands. But when it comes to the macro-economic policy, forbearance is the quality that pays. Any initiative on the feds' part inevitably makes things worse. The Bubble Era, like the Great Depression, was largely -but not completely - the result of government initiative. Artificially low interest rates - intended to counter the modest downturn of 2001 - sent the wrong message. Consumers - notably those in Britain and America - bought things they couldn't afford. Producers - notably those in Asia - made things for which there was no real market. Debt piled up. Mountains of it. As consumers bought more and producers made more the economy grew. But much of the economic "growth" of the 2001-2007 period was fraudulent. It was based on debt spending, not on genuine increases in purchasing power. Debt pretends to be real money. It looks like the real thing, but it is not. It stimulates the economy like counterfeit money. It causes production and consumption, but of the wrong sort. Former Reagan era Office of Management and Budget director David Stockman estimates the level of "counterfeit GDP" at $4 trillion in the US alone. The fraud was discovered, though misunderstood, when sub-prime debt began to implode. The economy had been kissed hard; millions of houses had been built, bought and sold. Now, owners couldn't pay for them. All of sudden, the counterfeit money began to shrivel up. Lenders, investors, and householders all began to de-leverage; paying down the debts as fast as they could, defaulting on those they couldn't. Rather than come to the obvious conclusion, that they should never have meddled with the economy in the first place, the feds began rescue operations on a breathtaking scale. The British government increased spending to 140% of revenues. America now runs a stimulus program nearly equivalent, in economic impact, to WWII. Not since 1945 have the two pages of its ledgers - debits and credits - told such different stories, with almost $2 of spending for ever $1 in tax receipts. Britain will add almost 50% to its government debt in the next three years. David Stockman expects the publicly held US national debt to almost double in the next five years. Even at those levels, many economists think the government should do more. Nobel Prize winner, Paul Krugman is one. Richard Koo is another. They've warned that the US (and by extension much of the rest of the world) could suffer a Lost Decade, like Japan, if the government slacks off before consumers have finished de-leveraging. At least they understand what is going on. Too bad they missed the point of it. The problem is too much debt, not too little spending. Leveraging up the public sector doesn't help. Even government debts must be paid - if not by the borrower, then by the lender. The feds are smooching more ardently than any debt lover in history; next, we get to see who dies...or at least who defaults. Until next time, Bill Bonner, for The Daily Reckoning --- Outstanding Investments Metals Research Report --- From Hulbert's #1 Ranked Advisory Letter Over a Five-Year Period... Even if Gold hits $2,000 by the end of this year... here's a hidden way you can get in for less than one cent per ounce Over the next two years, you'll witness the greatest surge in gold prices in market history - at least 119% above where gold sits today, as I write this. But even better, I've just discovered a way for you to sneak into the soaring gold market for next to nothing, with what I call "penny-per- ounce" gold. That is, doing this is a "backdoor" way to own as much of a position in gold as you like... for the equivalent of paying a single cent per ounce. Learn How Here.   The Daily Reckoning - Special Reports: Gold: The Truth About Gold Fiat Currency: Using the Past to See into the Future "THE GREAT AMERICAN RECOVERY RP-OFF" Brace yourself for what's about to go down as the BIGGEST FINANCIAL SWINDLE in world history.