Skip to main content

Financial Free Fall: America's Spectacular Crash

When the international gold standard officially ended in 1971 with the Nixon shock and the invalidation of the Bretton Woods system, the Dow Jones Industrial Average (DJIA) rallied from an average close of $884.87 to that of $891.14 in 1980 and $4,494.28 in 1995, apparently marking a 407.9-percent rise; measured against gold, however, which itself enjoyed gains of 1,837 percent between 1971 and 1980, or 1,016.83 percent between 1971 and 1995, this translated to an average close of 25.28 ounces in 1971 and 1 ounce of gold in 1980 before an average close of 9.88 in 1994, before it would finally recover into the double-digit range again, after twenty-four years, with an average close of 11.70 ounces in 1995, a level 53.7-percent below the high water mark previously set in 1971.

Today the Dow Jones Industrial Average stands at 13 ounces of gold, after trading above 42 ounces back in August of 1999 and above 22 ounces of gold in September of 2018. While far above the dreaded single-ounce level of 1980, today's mark of 13 ounces is eerily reminiscent of a prior experience.

A distant memory by now, the Dow Jones traded in precisely the same gold-denominated range between January and October of 2008, in the midst of America's last financial crisis, the Great Recession, just before the yellow metal began its rally from $730.75 to $1,825.00 in August 2011, marking a 150-percent gain in nearly three years. This brought the Dow Jones all the way down to a mark of 7 ounces of gold, a full 83-percent decline from its 1999 high.

Measured in gold, the bear market of the 1970s witnessed a Dow Jones decline of 95.9 percent over nine years. The current bear market, tracing its origins as far back as 1999, shows a 69-percent decline over the last two decades, or a 41-percent slump since 2018.

While it's no consolation to the unprepared majority, the recent bear market has just begun, and it's only part of the protracted secular bear market which preceded it.

While Americans and those invested in America have enjoyed a reprieve between recessions, that reprieve was really only the eye of the storm before the second and stronger eye wall predictably began to make its way ashore.

Unfortunately, the years between the storms seduced Americans into believing they no longer needed to take precautions, that they no longer needed to prepare themselves and their households for another storm because they had already seen it all. Or so they thought.

Brimming with false confidence in an inherently-flawed remedy that was always doomed for failure, they threw caution to the wind and ignored the signs of decay surrounding them, leaving them more susceptible than ever to the next big storm, and this one's only just begun. If history is any guide, this secular bear market has a long way to go before we reach the bottom, and while the fall is sure to be long and painful, the bottom is still nowhere in sight.

What's worse, most Americans, expecting a subtle jolt as if they've fallen out of bed, are going to be rudely awakened when they realize their supersonic flight has lost all four engines, with no parachutes onboard and no chance of slowing down, and it's dropping out of the sky from 60,000 feet.   

Comments

Popular posts from this blog

America's Civil War: Not "Civil" and Not About Slavery

Virtually the entirety of South and Central America, as well as European powers Britain, Spain and France, peacefully abolished slavery — without war — in the first sixty years of the nineteenth century.  Why, then, did the United States enter into a bloody war that cost over half of the nation’s wealth, at least 800,000 lives and many hundreds of thousands more in casualties?  The answer: the War Between the States was not about slavery.  It was a war of invasion to further empower the central government and to reject state sovereignty, nullification of unconstitutional laws, and the states’ rights to secession.  It was a war that would cripple the South and witness the federal debt skyrocket from $65 million in 1860 to $2.7 billion in 1865, whose annual interest alone would prove twice as expensive as the entire federal budget from 1860. Likewise, it was a war that would witness a five-fold increase in the number of civilians employed by the federal government, as federal gove

Into the Wild: An Economics Lesson

There is a great deal of substance behind the Keynesian motif, “In the long run, we’re all dead.” If this is your prerogative, your axiom, we are destined to differ on matters of principle and timeline. Surely, any quantity or decided cash figure is relevant exclusively to the available produce yielded by its trade. The current valuation thereof, whilst unadulterated, corroborates a rather stable, predictable trend of expectations, whereas its significance wanes once reconfigured by a process of economic, fiscal or monetary manipulation.  Individuals, vast in their interests and their time preferences and overall appetites, are to be made homogeneous by an overarching system which predetermines the price floors, ceilings and general priorities of life. Of course, all of this exists merely in abstract form. However, the supposition proposed by those who champion the agenda of “basic needs” fails to complement the progress achieved by the abolition of presumed guilt by the sole mis

Cullen Roche's Not So "Pragmatic Capitalism"

In his riveting new work Pragmatic Capitalism , Cullen Roche, founder of Orcam Financial Group, a San Diego-based financial firm, sets out to correct the mainstream schools of economic thought, focusing on  Keynesians, Monetarists, and Austrians alike. This new macroeconomic perspective claims to reveal What Every Investor Needs to Know About Money and Finance . Indeed, Roche introduces the layman to various elementary principles of economics and financial markets, revealing in early chapters the failed state of the average hedge fund and mutual fund operators -- who are better car salesmen than financial pundits, Roche writes --  who have fallen victim to the group think phenomenon, spawning the nearly perfect positive correlation to the major indexes, and thus, accounting for tax, inflation, and service adjustments, holistically wiping out any value added by their supposed market insight.  Roche also references popular studies, such as the MckInsey Global Institute's report whi