What economic recovery?

April 19, 2013

By John Seiler

Supposedly the economy has been recovering for three years, with the stock markets setting new records. But all those numbers are based on inflated dollars.

The United States was on the gold standard from 1789 until President Nixon foolishly imposed his Nixon Shock program in 1971. Doing so caused the massive inflation of the 1970s, with the price of gold rising from $35 an ounce in 1971 to $80 in 1980.

A quasi-gold standard then existed from 1981 to 2001, with gold averaging about $350 an ounce, although it fluctuated a little.

After 9/11/2001, Federal Reserve Chairman Alan Greenspan panicked and debased the currency. Gold’s price soared to more than $1,700, although in recent weeks it has crashed to around $1,400. In any case, it’s still way above the $350 average of the two decades from 1981-2001. That’s why gasoline costs four times what it did in 2000.

What if America had stayed on the gold standard? How would stocks have performed? The following chart shows the Dow Jones Industrial Average pegged against gold.

Dow and Gold, April 19, 2013

As you can see, the DJIA dropped for the past decade, although it has blipped upward recently. Far from the economy making progress, even during the supposed “boom” of the early 2000s, there has been a continuous decline.

The early Bush years, 2001-06, supposedly were years of strong growth. In fact, as the chart shows, the market was declining. Far from being a “free market” president, he was anti-capitalist. He went on a wild spending spree; let Greenspan inflate the dollar; hyper-regulated the economy with Sarbanes-Oxley; and even his tax cuts were worthless, as they had an expiration date.

The Obama years continued the Bush disaster. Although the past few months show the DJIA increasing, as the chart also shows, against gold; that might be because of gold’s sharp decline. We’ll see if that lasts.

By contrast, the Clinton years were quite good. The early Clinton tax increases of 1993, still bragged about by him and his partisans, brought stagnation, as the chart shows, from 1993-95. But in 1996, Clinton agreed with Republicans controlling Congress to cut capital gains taxes — and the dot-com boom soared.

Today in 2013, we’re basically at the same economic level we were in 1995. It was 18 years wasted.

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