Just in case anyone out there is breaking out the champagne over DOW 10,000:
…While in absolute terms the Dow may cross whatever the Fed thinks is a necessary and sufficient mark before QE begins to taper off (Dow crosses 10k just as Treasury purchases expire), the truth is that over the past 10 years (the first time the DJIA was at 10,000) the dollar has lost 25% of its value. Therefore, we present the Dow over the last decade indexed for the DXY, which has dropped from 100 to about 75. On a real basis (not nominal) the Dow at 10,000 ten years ago is equivalent to 7,537 today! In other words, not only have we had a lost decade for all those who focus on the absolute flatness of the DJIA, but it is also a decade where the US Consumer has lost 25% of purchasing power from the perspective of stocks!…
Fiat money – ie, money not backed by a hard asset, such as gold – is the perfect invention of Big Government. Used to be, when the government wanted to debase the currency, they had to call in all the coins and re-mint them with a lower gold content…and you could dodge this by holding on to the old coins. But with fiat money, its so much easier – all that had to happen is the Fed saying, “hey, presto!” and there are several trillion more fiat dollars in circulation…which means, of course, that the dollars you foolishly saved (in a bank, in a stock fund, under your mattress: doesn’t matter) have now become worth less than they were before.
This doesn’t hurt government – in fact, it helps government: it allow government to pay us back with bad money for the good money we lent it via bond purchases. It also doesn’t tend to hurt the very rich, as they either own hard assets (which will naturally climb in value as the dollar goes down), or they get returns equal to or greater than the amount Uncle Sam is stealing from us. Since we started down the road to fiat money – in 1913, with the creation of the Fed – our dollar has lost 99% of its value; Obama and the Fed are going for broke…trying to see if they can make our money absolutely worthless, and then they’ll pay the bondholders (this is why China is rather ticked off at us, by the way).
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