Mumbai Dreams


"Well, we’ve had a great run," we thought to ourselves as we drove into Bombay (now, officially, Mumbai) from the airport.

The richest 1% of the world’s population owns 40% of its wealth, we read in the Hindustan Times this morning. And where does this 1% live? In America, Japan, and Europe, of course. More than a third of them live in the United States; that’s about 20 million people who are among the richest 1% in the world. Almost another third live in Japan — 27%. The United Kingdom and France, between them, have another 11% or so.

Why did all that wealth end up in those countries, rather than in the countries with the largest populations? Countless books and doctoral dissertations have been written on the subject. We have no easy answer ourselves, except to point out the obvious — Europe (and America) stole a march on the rest of the world when it had its industrial revolution.

Japan, an oddball nation in many ways, figured out what was going on in the west after Admiral Perry bullied his way into Yokohama harbor in the 19th century. Japan realized that it would be at the mercy of western imperialists unless it too figured out how to use modern machinery. It went about the task with great energy and resolution and soon had one of the most modern armies on the planet. This, of course, sent it down an unfortunate path in the early 20th century…leading to the complete destruction of its military, many of its cities, and its industrial capacity by 1945. But the Japanese picked themselves up, dusted themselves off, and by 1990, Japan had the most modern, most advanced, and most successful economy on earth.

But now, here we are in Bombay. All around us we see apartment buildings and office towers. People here know how to mix cement. They know how to make nuclear bombs and internal combustion engines. Gone is the class struggle. Gone are the anti-colonial wars. Gone are the "isms" that so bedeviled so many people for so long.

Why didn’t the Chinese get rich along with the Japanese? Because they got caught up in a civil war…and then succumbed to various fashionable modern "isms" — Communism and Maoism, for starters And poor India…it was such a hopeless mess of classes, castes, languages and cultures. Then it had English colonialists to deal with…and then…it was loaded down for years with Soviet-style regulations.

But now…things have changed. The whole world seems fixed on the same objective — getting rich. The "isms" don’t seem to matter so much. Even India’s many different peoples all seem to be breathing in and out all together…aspiring to join the rich of the world…toiling night and day…sending its best and brightest to the world’s best schools…building factories…reaching out…stretching.

“The study found that India figures low in the distribution of global household wealth,” the Hindustan Times continues. Average wealth in India is only $1,100 per person. “But it is catching up fast!” the paper concludes.

And now the great lead…the great run…the great luck that the United States and Western Europe have enjoyed for so long…might be ebbing away. It’s over…at least, that is the way it looked last night.

More on Bombay below…

Meanwhile, the dollar has bounced. Is the worst over for the greenback? It has been on a slide for the last four years — down about 25% against the rest of the world’s money since February ’02.

Has it now bottomed out? We doubt it. There are problems, imbalances, absurdities, irregularities, and contractions that must be cured. Foreigners hold more than $13 trillion worth of U.S. dollar assets — and must continue to add to their holdings at the rate of $800 billion per year. For the time being they do so with no gun to their heads. And yet, every one of them knows that the dollar is in a vulnerable position. It rests on the "faith" of the world’s people…a faith that could be shaken at any minute.

Today, for example, brings news that Iran will try to diversify more of its international commerce away from the dollar — following a trend that is now well established. Half the world seems to want to back away from the greenback.

And soon, the biggest American financial policy makers — Ben Bernanke and Hank Paulson — will journey to China. They must tell the Chinese to let the yuan rise, says Nancy Pelosi and the other dough-heads. What does that mean? It means that the Chinese would stop adding to their U.S. dollar assets — bonds, stocks and cash. And what would that mean, dear reader? It would mean that the dollar would fall.

Of course, the foreigners are trapped. If they sell the dollar…or merely stop adding to their holdings…the dollar will fall. But so will the value of their huge dollar holdings.

“A 30 percent drop in the dollar, could cost foreign investors an easy $3 trillion in lost purchasing power, not to mention the loss to U.S. citizens who own over $46 trillion in dollar net worth assets,” writes Richard Benson. “Our leaders must find a way to lower the U.S. Trade Deficit, or risk the dollar losing its unique position as the World’s Reserve Currency. “America’s currency problem is a very sad day for the Republic. It used to be that the Federal Reserve policy was set simply with domestic economic policy in mind. In years past, we could virtually ignore the dollar in setting monetary policy because it was totally secure in its role as the World Reserve Currency. But today, because of our country’s profligate fiscal and over-easy monetary policies, the dollar has been undermined.”

What is ahead for the dollar? We don’t know. But we see a lot of downside risk…and little upside potential. It could go way down, in other words. It is not likely to go way up.

u2022 Bombay takes your breath away — literally. We went out of the hotel, briefly…and were soon gasping for air. We’re not used to the humidity, the heat…and the air (if there is any air). Mind you, this is the cool season.

In the newspaper, we find ads for all the usual consumer items…along with notices about new office buildings, new residential areas, new apartments. Newer, bigger, more modern and more luxurious — the place seems to be booming.

From what we can gather, property prices are soaring…along with the wealth of the middle and upper classes. The ads speak of "luxury this" and "exclusive that"; there’s a lot of money here.

But coming in from the airport was a shock. We have never seen so many people living on the streets. There were thousands of them asleep on the sidewalks. They have no mattresses. No pillows. They just seem to put a towel down on the pavement and a light cover over themselves. Where do they keep their stuff? Do they have any stuff? What do they do during the day?

u2022 Meanwhile, the papers report the end of an eighteen-year-old case. Cricketer and current BJP MP Navjot Singh Sidhu has resigned from the legislature after being given three years in jail by the Punjab High Court on December first. What did he do? He and a mate seem to have had a bit of a scuffle with an old man over a parking space…and in a fit of temper, they beat him to death. So if you’re driving in India, dear reader, be careful — the car you cut off might be driven by a member of parliament.

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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