Looking at the Baths in Bath

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Yesterday, driving back from a horse show in Bath, we stopped for gas. Britain has gone metric in order to stay in harmony with her European trading partners, but she still lists distances in miles. Gasoline is measured out in liters, just as it is in France, but it is priced in pounds.

The price for a liter of diesel fuel was .9 pounds. If we did the math right, this is equivalent to about $6.50 per gallon.

By comparison, we read today that the average price per gallon in America is $2.92. Gasoline is so cheap in the U.S. that Canadians are flocking across the border to fill up their tanks.

If the British are confused about how their gas is priced, the Yanks are certain they know where it should be — at rock bottom. The U.S. economy is set up for much cheaper gasoline. People have organized their lives and habits around the expectation of cheap fuel and cheap credit. They’re understandably disappointed to see prices rise.

But now, prices are rising; the dollar is falling; inflation is increasing. And we begin to see how the great Credit Bubble Boat ends, don’t we? It runs into the iceberg of inflation.

It seems obvious.

College tuition, health care, commodities — all seem to be going up quickly. Last week brought news that even salaries are going up. Pay levels are said to be 3.8% above those of a year ago, despite very sluggish job growth. Why would salaries go up when there is no apparent pressure to recruit new employees or hold onto old ones? The answer is simple: salaries are responding to inflation, not to job market. And on Friday, even stocks went up. The Dow rose 138 points. Are business conditions suddenly much better? No? Maybe it is just inflation.

Way up high, in the staterooms and luxury suites of this Titanic, the price increases are even more dramatic. One painting by Picasso sold for $95 million. Another sold for $34 million and still another sold for $18 million. That’s a lot of money to pay for crude paintings of people with their noses in the wrong place.

But now, some fellow in China has figured out how to create his own gimmick. He’s picked up the advertising cartoon, Joe Camel, and turned him into an art-world icon. Look, he explains, this modern art is simple; anyone can do it. In fact, you don’t even have to do it yourself. He pays others to do the actual work. He just comes up with the idea.

You’d think the art world would be annoyed at the chutzpah; the Chinese hustler is clearly pulling someone’s leg. But it doesn’t seem to matter. Aficionados are either too dumb to notice or too rich to care. They’re buying up the paintings of Joe Camel and hoping to score as big a coup as people who bought Picassos.

While prices rise, the dollar falls. Against the yen, it dropped to a seven-month low on Friday. Against the euro, it fell again, last week — to $1.27 per euro. And against gold, the dollar plummeted. June contracts for gold sold over $684 on Friday. Overall, the dollar has lost 4.5% of its value in the last three weeks.

There is no question that prices are increasing. Nor is there doubt as to why. Central banks are desperate to keep up with the expanding supply of dollars. Remember, they can control either the quantity of their currencies, or the quality of it, not both at the same time. As the United States emits billions and billions more dollars, the foreign central banks have to produce more of their own currencies. Otherwise, the falling quality of the U.S. dollar will make the foreign currencies go up in price. This will put their export industries at a disadvantage.

All over the world, central banks are favoring quantity over quality. They are inflating their currencies. Consumer price inflation is sure to follow.

There might be more to the story. Yes, all central banks favor inflation. And yes, Americans would vote for inflation, if they could; they are deep in debt and would welcome inflation as a way out.

But for every debtor, there’s a creditor. And for every fool who borrowed money to buy something he couldn’t afford and didn’t need, there’s a lender who lent to someone who might not be able to pay him back. The big question is: who will turn out to be dumber — the lenders or the borrowers? We don’t know the answer, but we suspect there is enough dumbness to go around. When the ship goes down, there will be plenty of losses for everyone.

u2022 As the public realizes that gas prices aren’t going to go down anytime in the near future, many are turning to hybrid cars as their salvation. These cars are the most environmentally friendly — and supposedly fuel efficient — option for those who can’t give up their vehicle and ride their 10-speed to work.

The Guardian tells us that a new report by Which?, a U.K. consumer magazine, shows that these cars aren’t all they claim to be:

"The recently launched Honda Civic hybrid only managed between 28mpg and 34mpg on its test, well below the most fuel efficient petrol and diesel cars and nowhere near the 54mpg being claimed in Honda’s literature. Tory leader David Cameron’s new hybrid car, the Toyota Lexus RX400, recorded 25—34mpg during testing and consumed around twice as much fuel as the most fuel-efficient diesel car.

"The consumer body noted that its greenhouse gas emissions were 27% lower than a petrol Lexus, but said it was no less harmful to the environment than a standard family estate car."

So, if hybrids aren’t going to save the world from high gas prices, what will? Outstanding Investments’ Justice Litle argues that there is an oft-overlooked contender for the Car of the Future: the humble old diesel engine.

"When most people think about diesels, they think u2018loud, dirty and smelly’ — a pollution nightmare. Except — surprise — those diesels you hear and smell are antiques. Thanks to new technology, diesels aren’t so dirty anymore and the gas mileage is better than ever!

"You see, diesel gets about 30 percent more miles to the gallon than gasoline, and those savings are real, in any kind of driving conditions. What’s more, people who worry about global warming prefer diesel because it emits up to 20 percent less carbon dioxide.

"This is all well and good, but the kicker is this: you don’t need crude oil to make diesel fuel."

u2022 Last week, Barron’s cover told us the Dow was going to 12,000. By Friday, the index did appear to want to go in that direction.

But if it’s going, it will have to go without us. We see little profit in trying to squeeze a few more points out of the Dow — and much potential for loss.

This week’s Barron’s cover headline is: "Paying Up! Strapped for cash, U.S. states and cities are selling toll roads to foreign companies willing to pay rich prices."

The money leaves home a servant; it comes back a master. We buy flat-screen TVs and Chinese tea. The money does our bidding. But then, the overseas suppliers end up with a net trade surplus over $800 billion a year. What do they do with the money? It comes back to us. They buy our factories, our T-bonds…and now, our roadways. Now, we are their servants — their clients, their customers, their employees, their debtors, their lackeys, their proles, and their lumpen.

u2022 We drove out to the city of Bath this weekend to attend a big horse event at Badminton.

Bath is a city made beautiful by its golden stone and the work of a handful of 18th century architects. It was almost fully built as a resort under various Georges, giving the city its harmonious, elegant look. The historic buildings are often rented out to tourists by Britain’s Landmark Trust — which holds properties all over the island — to help pay the expense of maintaining them. One of these is an apartment facing the old Bath Abbey and the Roman baths. We took it for the weekend.

We discovered that Bath would be even prettier to look at if it had not fallen under the spell of urban renewal in the ’60s and ’70s. There were sure things in need of improvement in the city during that period, but the architecture of the place was not one of them. Still, in came the wrecking balls and front-end loaders, and out went tons of gracefully carved stone. In its place, buildings were thrown up with all the charm and appeal of a Soviet-era YMCA. The Hilton hotel, for example, is an abomination; its front door looks so much like the emergency entrance to a public hospital, we expected an ambulance to drive up at any moment.

Still, most of Georgian Bath is intact, and still worth visiting, including of course the baths themselves, which are remarkably well preserved and extensive.

We did not stay in the city long, however. Our rendezvous was fixed for early on the morrow at Badminton, where one of the world’s premier horse riding events was to take place over the weekend. We are not especially interested in horses, but Elizabeth is a serious rider. So off we went.

While Elizabeth followed the horses around the track, we followed the people who followed the horses around the track. There were thousands of them. Young, old, fat, slim — we even ran into a blind man. We wondered what the attraction was…to someone who couldn’t see. As far as we could tell, the weather was miserably cold and wet. The horses ran around the track one by one, so there was no great sense of rivalry or the thrill of a tight race. It was so crowded that we could barely make any headway or see over the heads of other spectators anyway.

"And now, beginning over in the main stadium," said the loudspeaker, "the Riding for the Disabled Association, is putting on a special display."

We rushed over, out of curiosity.

There were about a dozen riders, some with obvious infirmities, others with merely a glazed look. Over the speakers came a loud version of "Hot, Hot, Hot," whereupon the monitors and teachers — two of them per horse — led the disabled riders around the ring. There was nothing "Hot" about any of it. In fact, the whole thing seemed exceptionally cold and restrained.

The people with handicaps and Downs Syndrome were appropriately puzzled. They must have wondered what the point was. Others, good-naturedly went along with the charade. We could practically hear them saying to themselves, "Well, this is silly…but if it makes them happy…"

The teachers were not only happy, they all had such big, cretinous grins of satisfaction on their faces, we were tempted to ask for a drug test. What were they so damned happy about, we wondered?

Maybe they were genuinely content to be doing what they thought was such a good thing — helping the handicapped. Or, maybe they were just pleased with themselves. After all, hadn’t they managed to turn a horse hobby into a career? All they had to do was smile like a half-wit from time to time, and use the poor handicapped kids as props.

Bill Bonner [send him mail] is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century and Empire of Debt: The Rise Of An Epic Financial Crisis.

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