Mr. Luo Ping, director general at China's Banking Regulatory Commission, speaking in New York on Wednesday, shared his opinion of U.S. bailout policies:

"Once you start issuing $1 trillion-$2 trillion ...we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do."

Reports in the press this week say that China is considering ways to diversify out of the dollar. The Chinese are no fools. They see what is coming. And they know what it will do to them - the holders of the largest pile of dollars ever assembled.

The Financial Times made it perfectly clear to them in a cartoon yesterday. It shows Barack Obama in front of a huge smoking trashcan filled with dollars. The president is pouring on gasoline.

Yes, dear reader, Mr. Ping has caught on. And the rest of the world is catching on too. The feds are printing trillions of dollars...and dumping them in banks and zombie corporations. They've got out their Zippo lighters...their firestarters...their kindling and crumpled paper.

But getting this blaze going is harder than most people think. It could take months...or even years.

Yesterday, the Dow held steady. But oil continued to sink. The price per barrel fell below $35.

France is officially in recession, says today's La Tribune . GDP fell at a 1.2% rate in the last quarter, the government announced. A decline of 1% is expected for 2009.

Spain is in a worse recession. Property sales are off 30%. The GDP is expected to decline 3.3% this year. And unemployment is projected to reach 19% by 2010.

"Falling like a rock," says La Tribune of Spain's economy.

Meanwhile, "India set for slowest growth in six years," says the FT .

"Austria warns of dangers in potential Ukraine 'catastrophe,'" continues the gloom and doom.

And in Japan:

"Deflation fears grow as wholesales prices fall."

"Pioneer lays off 10,000 workers..."

World trade is collapsing. Now everyone is complaining about 'protectionism.' The next G7 meeting has protectionism - and how to avoid it - at the top of the agenda. But protectionism is just the reaction, not the cause. Trade is collapsing because people have become reluctant to spend, invest or lend anywhere - especially, far from home.

The guy who invented the shipping container industry works in the office above us, here in the "Sea Container Building" in London. You know, the building with the gold balls on the roof. He's an American from Kentucky who later got into the railroad business and went broke. But after WWII he figured out that shipping could be made much more efficient by putting goods into metal containers and using big cranes to stack them on ships. Thanks to his innovation, globalized trade got a huge boost.

But now, for the first time in its 53-year history, container traffic is going down. In the last four months, not a single new container vessel has been ordered. China - the planet's largest factory - is making, selling and shipping less stuff to the rest of the world. Exports to the United States are down 10% year on year; exports to Europe are down 17%.

In the United States itself: "CEOs see grim economic outlook..."

"Biggest GDP drop since '46..."

"Toll Bros. first quarter revenue down 51%...no end in sight to real estate trouble..."

"Caterpillar to cut 2000 jobs..."

The headlines are nearly unanimous: it's deflation that menaces the world, not inflation. But Sparky Benarnke...and Barack "House-o-fire" Obama...are on the case. They're not going to rest until they get that darned conflagration going.

Eventually, they'll get a small flame started... And then, watch out...it could burn, baby, burn... like a brush fire in Australia.

And that's when the Chinese will really hate us.

*** "Fears of a return to the 1930s are too pessimistic," writes David Bowers in the FT .

Au contraire, they seem too optimistic to us.

In the '30s, the feds still had a residual respect for law and order. So did the public. When the Roosevelt administration went about taking control of the economy, it had to fight against the courts the whole way. As many as 1,600 injunctions were issued to prevent the feds from carrying out their grandiose plan. When these cases got to the Supreme Court, the court threw out key parts of Roosevelt's program as unconstitutional. The U.S. Constitution was meant to limit was government could do. Apart from the express undertakings described in the document, all other things were supposed to be left to the states and to individual citizens. Nowhere in the U.S. Constitution was there any mention of an "industrial recovery" program, for example. So the Supremes threw it out.

Then, Roosevelt attacked the court itself. He argued that "nine old men" should not be allowed to stop progress. He tried to pack the court with more justices ready to do his bidding. This was too much for Congress to swallow; even his vice president was against it. The amendment to increase the number of Supreme Court justices failed.

But then, the old men themselves failed. They died. And as their mortal envelopes got packed in the dirt, new justices were appointed - such as Felix Frankfurter and William O. Douglas - who were willing to go along.

This time there is practically no resistance. President Obama enjoys support, both wide and deep. The public is behind him. Congress is on his side. And the courts have long since given up trying to limit the power of the federal government.

Everyone wants something for nothing. And everyone believes he can get it from the feds. As a result, we're looking at trillion dollar deficits - as far as the eye can see.

That's not all, of course. Back in the '30s, the dollar was still linked to gold. The price was set by law and dollar holders were free to convert their dollars into gold at the statutory price. In order to devalue the dollar, the Roosevelt administration had to call in the nation's gold - making it illegal for private citizens to hold the yellow metal - and then revalue gold upwards. In a stroke of a pen, debts denominated in dollars were clipped 60%.

Now, there's no need even for the pen. Dollars float on a sea of debt...with no golden anchor to windward. All it takes is a whoosh of inflationary breeze and the buck is off! No need for calling in gold. No need for legislation. In a few days, the value of the dollar could be cut in half...or by 75%...or more.

And who's going to protest? The Chinese? Yes...but they don't vote in U.S. elections.

Although the dollar is no longer bound to gold, smart investors still see it as the ultimate store of wealth...and so should you. Hedge your investments against the imminent demise of the dollar by holding onto some gold. It's easier than you think. See here .

Bill Bonner
for The Daily Reckoning Australia

• President Barack Obama and Franklin Roosevelt Are Becoming Akin
• Politics and Investment Intertwined
• Geithner Reassures China that America Takes Financial Obligations Seriously
• Irving Fisher Remains Immensely Important in the History of Economic Thought
• US Economists Think China Should Raise the Value of Yuan

'Black Friday' turned out to be less dark than people feared. Sales rose 3% over the year before. This was a 'weak start' to the holiday shopping season, reported the New York Times. But to us, it was surprisingly strong.

In fact, many shoppers were so eager to part with money they would kill you if you got in their way. We're not exaggerating. This report from the New York Times tells what happened at a Wal-Mart:

"Suddenly, witnesses and the police said, the doors shattered, and the shrieking mob surged through in a blind rush for holiday bargains. One worker, Jdimytai Damour, 34, was thrown back onto the black linoleum tiles and trampled in the stampede that streamed over and around him. Others who had stood alongside Mr. Damour trying to hold the doors were also hurled back and run over, witnesses said.

"Some workers who saw what was happening fought their way through the surge to get to Mr. Damour, but he had been fatally injured, the police said. Emergency workers tried to revive Mr. Damour, a temporary worker hired for the holiday season, at the scene, but he was pronounced dead an hour later at Franklin Hospital Medical Center in Valley Stream."

Of course, when you're fighting a major war there are bound to be some casualties...and some collateral damage. As we keep saying, the latest fashion trend is being led by the frugalistas. But some people are slow to catch on...such as the mob in Valley Stream, NY. At least Mr. Damour died in the line of duty...serving his country as it desperately tries to avoid coming to its senses.

It's war, remember. The feds are spending more on this war than on WWII. They're 'pulling out all the stops.' They're 'throwing caution to the wind.' They're 'riding hell for leather' to rescue the U.S. economy. Getting in their way is dangerous. For investors and store managers.

Investors should check their shorts. A major rally could be very costly. Stocks could easily bounce back half way to where they began. That would put the Dow at about 11,000. If that happens - and it could - don't forget to sell.

It says in this morning's International Herald Tribune that the feds are "going for broke" to avoid a "financial collapse." Yes, exactly...that is where they are going.

Bloomberg came up with its count of how much the war against nature is costing: $7.4 trillion...with $2.8 trillion already committed. We reported a figure over $8 trillion yesterday. By the end of this week, it will probably be $10 trillion.

Anyway you look at it, it's a big number. It has to be. According to the theory given to us by Keynes, the government has to make up for the spending private citizens are no longer doing. Americans used to 'take out' as much as $200 billion per quarter from their home equity. Now, they have nothing to take out. So, that's $800 billion per year that needs to be replaced right there. And, instead of taking out, they have to put back in...that's what a 'balance sheet recession' is all about. They have to pay off debt and build up savings. Our own guess is that that figure - the amount that used to be spent, but must now be used to repair finances - will rise to about 10% of GDP - or about $1.4 trillion per year. In other words, the feds will have to spend an extra $2.2 trillion per year.

For comparison and reference, the Times is reporting a $1 trillion figure. And economists argue that $750 billion of federal spending would achieve the equivalent of $1 trillion in additional output, thanks to the 'multiplier effect.'

But today's Times' editorial goes on to say something uncharacteristically smart: "fighting today's crises the government is teeing up the next one. To finance the bailouts, the Treasury is borrowing money and the Fed is printing it. That bodes ill for a heavily indebted nation, presaging higher interest rates and higher prices - perhaps sharply higher."

Let us remind you of Tainter's simple explanation for why things fall apart. Problems bring solutions. Solutions bring more problems. And each solution has a cost. Eventually, the weight of all the solutions crushes the system.

But we're not going to worry about that now. We've got a bounce on our hands...finally! The Obama Bounce is here!

Or, at least that is how it looked to us at the end of last week. The shoppers were out...and the Dow had a winning streak last week. It rose again on Friday 102 points. Oil remained unchanged at $54. The euro/dollar exchange rate is staying put too at about $1.27 per euro. And gold rose $8.

*** "It doesn't affect us..." said Edward, 15. "Except that you don't let me call for a pizza anymore. I have to go pick it up myself."

The two of us - Edward and his father - have been living the bachelor life. Elizabeth returned to the United States for her mother's 80th birthday. The other children are dispersed all over the world. Your author's mother - who lives with us part of the year - went back to the United States with Elizabeth. That left just the two of us, uh huh...uh huh...

Fortunately, Paris is full of restaurants and other distractions. We had dinner with friends along the canal St. Martin...the restaurants and bars were full. Then on Saturday, we were turned away from one restaurant; it was 'complet,' said the waiter.

But wherever we went, whomever we spoke to, the subject was the same - the worldwide financial meltdown.

"Crisis that touches everyone," says the International Herald Tribune.

Au contraire, the crisis doesn't seem to have touched anyone in Paris. At least, not much. In Zurich, too, there were few signs of a downturn. Christmas decorations have gone up. Shoppers have come out. Life goes on as usual.

Except for a few banks and pension funds, Europe never got caught up in the credit bubble the way the Anglo-Saxon countries did. Housing prices rose strongly, but were never based on mortgage debt or speculation. Generally, people kept their heads. Europeans never quite got in the party mood...and now have no hangovers.

Over in the English-speaking world, though, it was madness on the way up...and it is madness on the way down. Which is great fun for economists...but a little nauseating to the poor guy who's just along for the ride.

And now everyone is caught in the gloom of the après-bubble world.

In the United States, auto dealers were the pillars of the local community. They provided convertibles for the high school football games. They led the fund drives for widows and orphans. They supported the local restaurants and bars with bonhomie and dollars.

Now, the auto dealers are in trouble. Not that they aren't still ready to help the Fair Queen; it's just that they don't have any money. Sales have flattened. The salesmen put their feet up on the desk and snooze, confident of being undisturbed. While the crowds trample clerks at Wal-Mart, people selling big ticket items - consumer durables - are as lonely as a hermit. It's one thing to lay down 10 bucks for a geegaw from China. But a $10,000 or $20,000 commitment demands reflection. And few people who stop to think about it are going to spend money - not with a major recession settling in.

How bad will it get? Of course, no one knows. At the present rate of walking backward, the U.S. economy will retrace 4% of GDP in 12 months. Nouriel Roubini says he expects the slump to take 10% off America's GDP before it is over.

The recession of the early '90s took only 1.3% off US economic output. The Great Depression, on the other hand, was a 25% setback (if we recall correctly).

How much will people be 'touched' by the slump? Again, we don't know. What can you do? Prepare for the worst. Hope for the best. Watch out for hordes of shoppers. And beware the bigger bust the bailout brings.

(More about that as our Daily Reckoning continues...tomorrow... Note that we're on our way to South Africa today...then on to Mumbai. If you don't hear from us, it is not that we have forgotten you. Either we have been unable to get an Internet connection...or we are being held hostage by terrorists...)

Until tomorrow (hopefully),

Bill Bonner
The Daily Reckoning Australia

• Feds Have Used the Correction to Increase Their Power and Add to Their Wealth
• The Country is Going into a Recession with its Finances in the Worst Shape Ever
• The More Money in a Financial System the Less Each Unit is Worth
• The Feds Are Trying to Avoid Deflation
• Financial Problems in the U.S. Are Small Potatoes Compared U.K.