If you, like us, are tired of listening to the drivel which emanates in a steady stream from governments and central banks all over the world when they talk about their role in "managing" economies and fianancial systems, an antidote is in order. This week, we are presenting one in the form of two simple charts of two simple financial "indexes". Both these charts go back to the dawn of the global "fiat currency era" in 1973. Both are affected by both REAL inflation and even more by the bogus view of inflation put out by central and commercial bankers everywhere.
Inflation, properly defined, has ALWAYS been - an increase in the total stock of money. And, of course, as a RESULT of any increase in the total stock of money all prices have a tendency to rise. There is no hard and fast correlation though. Some prices will rise more than others. Some prices will rise much more quickly than others. Some prices will not rise at all. And some prices may even fall. The one constant in all this is that the money which is being inflated will lose its purchasing power, and the more intense the inflation, the greater the loss of purchasing power.
As you know, all government statisticians are very selective indeed when it comes to choosing the prices they will use as a "measurement" of the level of inflation caused by their manipulation of money and, in particular in our modern era, credit. They are even more adept at "fine tuning" the formulas they use to derive their inflationary "measurements" - commonly known as the Consumer Price Index (CPI).
The premier means of pumping more "money" into circulation in recent decades has been through credit expansion. Since the repudiation of US Dollar Gold redeemability in 1971 and the subsequent dawning of the global fiat era less than two years later in early 1973, circulating currency in the form of physical notes and coin have made up an ever smaller amount of the "total stock of money". The vast majority of what is today used as "money" is debt paper of all descriptions.
This is the reason why no calculation of price rises which purport to "measure" inflation ever include any debt-based financial assets. In modern monetary systems, EVERYTHING - up to and including the actual cash itself - be it Dollars or Euros or Yen or Yuan or anything else - is a debt-based financial asset.
With this in mind, we give you a chart of the most widely-watched index of debt-based financial assets in the world. Here is a Dow chart going all the way back to the start of the fiat-currency era in 1973.
(Chart appears here in original analysis.)
Please remember as you gaze in wonder at this chart that the Dow never got above the 1000 level to stay in the century ending in 1983. Note too that over the amost 25 years between 1958 and mid 1982, the Dow traded in a 500 point range between 500 and 1000. That includes the one decade in the past half century that IS generally regarded as being "inflationary", the 1970s. In the slightly more than 25 years since mid 1982, the Dow has climbed as high as 14164 - last October. There is no way that could have happened, and have been reflected to a greater or lesser degree on stock markets all over the world, without a grotesque level of inflation.
Yet according to all the pundits, there was next to no "inflation" at all throughout this quarter of a century. Inflation in the US, according to them, has only begun to emerge in the past few months.
Finally, as you look at this Dow chart, keep firmly in mind the FACT that the standard of living of the average American man or woman has not improved AT ALL over the period covered by this Dow chart. THAT is the real damage caused by inflation, whether anyone chooses to acknowledge its existence or not.
The second of our two charts is the one we present regularly on this page. This is the "price" of Gold as expressed in US Dollars going back to near the dawn of the fiat currency era in 1974.
(Chart appears here in original analysis.)
The great surge in the Gold price has, of course, come in two waves. The first one one took place in the 1970s. The second one has taken place since early 2002. The intervening two decades plus was the great era of paper-asset price inflation, a period when the ever greater amounts of credit-based money were being funnelled into paper asset markets of all descriptions. This was the period during which Gold fell in waves from its $US 850 1980 high to lows just above the $US 250 level hit in 1999 and again in early 2001.
In October of last year, when the Dow hit its high of 14164, the $US Gold price stood at about $US 750. Now, with the Dow having confirmed a bear market this past week by falling more than 20 percent below that October 2007 high, Gold has risen by nearly 25 percent since October 2007 to its Thursday, July 3 close of $US 933.60. Of course, back in mid March, the Gold price briefly gained the $US 1000 level.
What these two charts depict, clearly and starkly, is a global monetary experiment which is now in the process of coming to a very bad end. The idea that a global monetary system could be built on "promises to pay" became a working model in 1973 with the start of the fiat currency era. For more than three decades it has grotesquely distorted the US financial system and tragically destroyed the producing US economy. The extent of this distortion can be seen clearly on the Dow chart - AND on the $US Gold chart too.
Now, with increasing speed as this year has progressed to date, these distortions are proving unsustainable. The Dow chart shows it. The $US Gold chart shows it too.
We have extended the table below into 2008, even though Gold in all four currencies in the table is now well above its 2006 highs. Gold breaking out to new all time highs in $US terms at the end of January led to bull market highs in all four currencies. And as you can see, in March, Gold improved upon those January levels in all four currencies as spot future Gold closed above the $US 1000 level for the first time ever in the middle of March.
| |||||||||||||||||||||||||||||||||||||||||||||||||