Market Watch - February 24, 2014
This is a very dangerous market. We continue to be deceived by the President, and Congress, over the necessity of continuously increasing the national debt. Every single dime of that debt goes to welfare recipients for the benefit of politicians purchasing votes. If either the democrats, or the republicans, had wanted to balance the budget, and get out of the pyramiding tragedy of increasing our debt, they would have. The “ladies and gentlemen” in Washington are working on their own behalf, not ours.
Examples: automatic pay raises; separate and better health plan; ditto retirement plan; exempt from social security; and exempt from Obamacare. The inability of our politicians to pay attention to the “limited government” theory of our Founders has resulted in the greatest Ponzi scheme in history: destruction of the dollar’s value.
The market is at historically high levels for only one reason: Congress and the President continue to insist upon making money out of absolutely nothing to pay for the government’s current expenditures. That $80 billion a month of brand new money, that doesn’t have one single lick of work, or sweat, or obligation involved in its creation, goes to banks and stock speculators who keep churning the market. This has contributed to two things: (1) an inflated, over valued stock market, and (2) the largest monetary bubble in history.
Any bubble always represents current market value far in excess of the liquidation value of the underlying assets. The debt that created our bubble is an obligation of the U. S. government, just like currency. The government used to be required to have enough gold and silver in storage to redeem outstanding obligations. Ever since the Federal Reserve System was created in 1913, however, politicians have chipped away at that Constitutional requirement.
We cannot turn our dollars in for anything other than more government paper obligations. There is now very little U. S. “hard” currency. The government is obligated to eventually redeem almost $20 trillion of bond and currency obligations. It is not possible. Government bonds are secured by assets that include thousands of failed pieces of real estate, which could not be redeemed for 50 cents on the dollar.
To see how great a Ponzi scheme this really is, let’s take a look at the money supply chart. And let’s see how the dollar has been ruined.
U. S. M-2 Money Supply Statistics |
|||
1954 |
1984 |
2014 |
|
| Money Supply (Billions) | $177 |
$2,343 |
$11,000 |
| National Debt (Billions) | $271 |
$1,572 |
$17,300 |
| Dollars per ounce of gold | 35 Dollars |
308 Dollars |
1,250 Dollars |
| Dollars Outstanding per ounce of gold |
175 Dollars |
8,900 Dollars |
41,920 Dollars |
| Ratio of money supply to gold supply |
5 to 1 |
29 to 1 |
34 to 1 |
| % Gold backing money supply |
20% |
3.5% |
2.9% |
| % Of bank assets owned by 5 largest banks |
Less than 5% |
Less than 10% |
59% |
| Purchasing power of 1954 dollar |
100 cents |
28 cents |
11 cents |
The chart tells us a lot, and the theme is the denigration of our purchasing power. M2 is the total of all liquid assets such as savings, CDs, cash, and checking accounts. In 1954 the gold backing of our entire money supply was 20%. Skip 60 years to 2014, and the gold backing of currency outstanding is only 2.9%. In that same period, inflation has dropped the purchasing power of our dollar to 11% of what it would purchase in 1954.
For a country’s business to be strong, the government’s balance sheet must be strong. Historically, civilizations whose currencies become “world currencies”, fail. They fail for the reasons we are failing; they put more emphasis upon promising and providing benefits for the populace, than governing. The only way those promises can be met is through more and more debt.
Government debt has destroyed every great economy in history by first destroying the value of the country’s currency. The term is “Currency Debasement”. Rome, Portugal, Spain, France, and England all did the same thing and their world currencies failed. Government indebtedness required so much of their country’s resources that interest obligations eventually could not be met. Other countries quit using their currencies. That’s what’s happening to the dollar.
CONCLUSION
The market bears an inordinate amount of risk. The big stock houses and banks are making bundles because of government money making (Quantitative Easing). Dividends are at an all time low of 2.1% on the Dow. That is not even enough to cover inflation. Solid fundamentals don’t exist to support this market. Sooner or later, all Ponzi schemes are exposed. Obamacare; pending tax increases; onerous interest costs on the national debt; and a highly over-leveraged monetary system make the risk of purchasing additional stocks in this market greater than the potential for good returns.
Caveat Emptor.
George Rauch
February 28, 2014
