Global Economies Surge Forward

There was a time...not so very long ago...when Americans held all the top spots. We had the most...the best...the biggest companies. And the richest people.

Those days are gone...

MEXICO CITY (AP) - Mexican telecom tycoon Carlos Slim is the first man from a developing nation to become the world's richest person - a shift that underlines the loosening of America and Europe's stranglehold on the top spots in the billionaires' club.

Slim's arrival at the top aroused both pride and anger in Mexico, where many see his fantastic wealth in a poverty-afflicted nation as a sign of what ails it.

With a recovery in the value of his cell phone holdings pushing his estimated fortune to $53.5 billion, Slim jumped past Microsoft founder Bill Gates and stock investor Warren Buffett when Forbes magazine released its 2010 list of the world's wealthiest Wednesday.

The rise of Slim, the 70-year-old son of an immigrant shopkeeper, is just a part of the emergence of billionaires in developing countries, Forbes reporter Keren Blankfeld said. She noted this year's top 10 richest also include two billionaires from India and one from Brazil.

Here's another item in today's news:

"China becomes world's biggest internet market," says a Reuters headline. There are more Internet users in China than in any other country, says the article. And more cars sold. And more concrete poured.

Travel broadens your horizons, they say. More importantly, it humbles you. You realize that there are a lot more people doing a lot more things than you thought.

All over the world, people bus, hump, schlep, toil and strain. Some work hard. Some work not so hard. Some work smart; others don't.

But over time, fashions and circumstances change. What goes around, comes around. Those that did once ride so high now lie low...

Yes, dear reader, the world turns. And traveling around...you get to see different parts of it...with different stories to tell...

This morning's news tells us that 60,000 people are rioting in Greece...torching German cars and generally behaving badly.

What's their beef? They're running out of money, running out of credit...and running out of time. Modern macro-economic policies have turned against them. (More below...)

But they're not alone. The news from the plains tells us that Kansas might have to close half of its public schools...if it doesn't find a way to close its budget gap.

The news from other states is not very different. Many foreign governments are in the same fix. Ireland has already begun its "austerity" programs. Italy and Spain can't be far behind.

But what about the US federal government? No austerity at all. Just the opposite. The feds announced the biggest budget deficit ever - $221 billion for the month of February. In other words, per family, the American government spent approximately $2,000 more than it received in tax revenues. Hmmm....if it continues at this rate, it will spend $24,000 more than it receives per family this year. In round numbers, the typical family will pay about $25,000 in taxes...and receive about $50,000 worth of 'services.'

Is that a great deal...or what?

It's an absurdity...it's preposterous...it's weird and unnatural. And it can't last.

It is only possible now because of the peculiar circumstances of today's financial world. Lenders, stock investors...Chinese creditors...give their dollars to the US government, believing it to be the most credit- worthy borrower in the world. But as the supply of US debt goes up the quality of it declines.

Already, the US is - from a GAAP accounting point of view - bankrupt. (See below...) Lenders cannot reasonably expect to get their money back. But that doesn't seem to bother them. US debt still looks like a better bet than, say, Greek debt.

But the world is full of surprises. What a shock it will be when the US finds itself in Greece's shoes!

And here's Addison, with a few words on our favorite metal from Agora Financial's H.Q. in Baltimore, Maryland...

Here we go again. Markets have caught a chill after signs of inflation fever in China. And that's not even the half of it. Let's dive in...

Consumer price inflation in China hit a 16-month high in February - a 2.7% year-over-year increase. China's National Bureau of Statistics was quick to put out a statement reassuring everyone that "price rises this year will be moderate and controllable," but that's not enough to calm traders looking for excuses to feel jittery.

And any news that might, possibly, at some point in the future, signal monetary tightening in China...well, that's enough to put the fear of God in them. Hence, the major US indexes opened down about 0.2% in the first hour of trading yesterday. The news is also an excuse for traders to bail out of gold, which clings to $1,105 as we write.

So much for the short-term noise from China. But the Middle Kingdom is also making real news this week. We'll get to that in a bit, but first, we bring you this item to help put it in context.

Right in line with analysts' forecasts, Uncle Sam's budget deficit for the month of February was $220.9 billion - the largest monthly total in history. For the first five months of fiscal 2010, the total is $651.6 billion, 10% ahead of last year's blistering $589.9 billion pace.

The details are even fuglier. Total revenues: $107 billion. Total expenditures: $328 billion. Yes, that's only one dollar of revenue for every three dollars spent.

We have just two words for this: Banana. Republic.

So what does China make of numbers like this? As it happens, the National People's Congress is holding its annual session this week. During the festivities, Yi Gang, the head of the Chinese State Administration of Foreign Exchange assured the world that US Treasuries would remain a major component of China's reserves.

We noticed he said little about whether China would actually add to its positions and soak up some of that additional debt racked up last month.

Yi also pooh-poohed any role for gold in China's wealth management strategy: "It is, in fact, impossible for gold to become a best stock investment channel for China's foreign exchange reserves," he said. "I have 1,000 tonnes now, and even if I doubled that holding, according to current prices, that would be about $30 billion..." barely a drop in the big bucket that contains $2.4 trillion of China's forex reserves.

Of course, that's what face the Chinese government puts on for the public.

Yet "the volume of China's gold reserve in terms of its forex reserves only ranks fifth in the world, and is well below the global average," says Russell Hsiao of the Jamestown Foundation.

Hsiao rounded up some interesting stories from Chinese media that shed additional light...

• The Guangzhou Daily reported in 2008 that China's central bank was considering raising its gold reserve by 4,000 metric tons. (It's currently 1,054 metric tons.)
• Ji Xiaonan, the chair of the supervisory board for major state-owned companies under the Chinese State Council's state assets commission, set an even higher bar last year - 6,000 tons by 2014, and 10,000 tons by 2019
• According to the English-language website ChinaStakes, a senior official from the People's Bank of China (PBoC) suggested last year that China should "secretly increase its gold holdings" as part of a long-term plan - with the central bank buying up as much domestic production as possible.

However it turns out, "the long-term implications of Chinese debates to increase its gold reserves," Hsiao concludes, "will have far-reaching impact on the stability of China's forex reserves and the yuan's ability to become the next reserve currency of the world. The question for Chinese leaders now appears no longer if, but how, that will come about."

Indeed.

[Joel's Note: Right now Addison is beta testing his brand new research service, tentatively titled Addison Wiggin's Apogee Advisory. Every month, Addison will deliver eight pages packed with two or three big- picture trends and ideas gleaned from his worldwide travels and "golden rolodex" of contacts.

The service, in Addison's words, is aimed at "providing best stock investment research for individual investors that will not only cover the nexus between money and politics, between Wall Street and Washington, but would crush even the finest research published by the Wall Street houses, such as they are."

BUT... Exciting as the project sounds, Addison needs your help to fine- tune a few of the moving parts. With that in mind, he's offering the first three "beta-test" issues to Daily Reckoning readers free of charge in exchange for your feedback. (Tell him what you like/don't like, etc.) The first issue is due out this month, so if you want in on the ground floor, you'll have to be snappy. ]