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Written by Administrator
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Saturday, 16 April 2011 17:06 |
Those are four words -- this time it's different -- that are supposed to invalidate any investing argument. But if your frame of reference is the U.S. economy during the past century, then the fact is that this time it really is different. Now in the grand scheme of things, this isn't different at all. It's the same pattern followed by every fiat currency. But this is new within our lifetimes and those of our near ancestors in this country. It's true that we had hyperinflation in the Continental currency, but that has long since passed out of the public consciousness. Right now the only people in the U.S. which would recognize this pattern, other than those sufficiently researched in the topic, are those from South America, Eastern Europe, Zimbabwe, and the like. This time is not different for them. They've seen it before. But for anyone who was born in the U.S. and is speaking from their own personal experience, this time is indeed different. It is not valid to cite anything within your investing lifetime which compares to the present circumstances. This isn't like 1980, it's not like 1929 even. This is new for you. Expand your horizons beyond your own immediate experience and see that this has happened before elsewhere, and it didn't turn out well.
This is a condensed version of my previous Timeline of Hyperinflation, compressing the x-axis and removing some of the extraneous timeline info to really show the exponential trend we're on since the introduction of unbacked paper money. You can see how the Federal Reserve was created in order to take us off the Gold Standard in order to enter WWI. When inflation got out of control as a result, we were returned to a Gold Standard in the 1920s. But it was suspended again in preparation for WWII as well as FDR's social programs. But once again, inflation demanded a return in 1944, although only partially. Cold War spending, huge new social programs, and the Vietnam War forced us off the Gold Standard permanently in 1971. Here I've divided the chart by a thin orange line indicating some form of Gold Standard to the left and freely floating, unbacked fiat currencies to the right. The impact on the money supply, U.S. sovereign debt, the exchange rate of real money (gold), and the price of commodities (represented by gasoline) is unmistakable. Without another scheme like "petrodollar hegemony", the trend is obvious -- all four measures are going vertical. You can't blame speculators or OPEC or global climate change. The culprit is Federal Reserve monetary expansion and government borrowing unchecked by any form of Gold Standard.
For the expanded, more detailed view of this information, see my previous chart.
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Last Updated ( Thursday, 16 June 2011 01:17 )
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