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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.   


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