In
1978, ABC News created a new programme in the US, named for the “20/20”
measurement of visual acuity. For 38 years, the programme has remained popular,
through its format of in-depth news stories.
20,000
The
20/20 number is itself of significance in the present year’s news events. In
January of this year, the Dow closed above 20,000 for the first time in
history. New President Donald Trump glowed in the event, which many of his
supporters say is due to the expectations of what his presidency will do for
business.
If,
however, we measure the Dow against the price of gold (the foremost measure of
wealth for the last several thousand years) the Dow presently comes in at
roughly 18.1 ounces of gold. However, the Dow reached its peak as compared to
gold in 1999, at 49 ounces. Since that time, the Dow has fallen more than 62%.
DOW's
19 Year Performance:
Of
course, valued in dollars, the Dow would seem to have done well and, for some
years, the dollar’s value has steadily increased against other currencies. However,
as readers of this publication may be aware, the dollar is only doing well
against other currencies, as so many other currencies are in trouble and may
soon collapse. The dollar is therefore merely the best looking horse in the
glue factory. If we were to compare the 2017 Dow to the 1999 Dow in 1999
dollars, the drop would be 80%. In this light, the present glow of the Dow dims
considerably.
20,000,000,000,000
For
many of us, the above number of zeroes is difficult to contemplate, yet twenty
trillion dollars is the level of debt that the US will reach by June of 2017 at
the present rate of increase. (As compared to 1999, this is an increase of over
353%.)The present debt equates to roughly $160,000 per taxpayer. Added to that
debt would be credit card, auto, mortgage and student debt. The question would then
arise, “How is it possible that that level of debt can ever be paid?” The
answer, of course, is that repayment is utterly impossible. The US taxpayer is
presently digging a hole that’s too deep to get out of and his government is
doing the same.
And
so, regardless of any positive spin that the media might put on the present
situation, the 20/20 news is not terribly promising.
The Dow’s future
Markets
periodically form bubbles. The present bubble is one for the record books.
Accompanying any bubble is the perception by many that “The sky’s the limit!”
Although this invariably proves false, brokers and others who benefit from
market transactions are fond of saying, “We’re nowhere near the top.” The more
enthusiasm they can create for greater flurries of buying, the more money they
make. Not surprisingly then, major bull markets typically don’t end with a
whimper, but with a major upside spike. We can therefore expect that, at some
point, a black swan, armed with a pin, will burst the bubble and we shall
witness a market with its collective jaw once again on the floor, aghast over
what had been inevitable.
The Debt’s Future
Historically,
national debts have also often formed bubbles. For literally thousands of
years, political leaders have seen debt as a temporary solution to their own
mismanagement. And if one leader increases debt significantly, his successor
can generally be counted on to do the same. What goes up must come down and,
when massive debt comes down, it invariably does so with a crash. Today, we’re
witnessing the greatest level of debt in history and the resultant crash can also
be expected to be the greatest in history.
In
2007/2008, we entered the Greater Depression, yet the media have done an
effective job of convincing the public that it was merely a recession. Their
greatest argument in doing so has been to say, “How can we be in a recession if
the Dow is going up?” And the public have nodded their approval. In so doing, they’ve justified continued
borrowing to themselves and, not surprisingly, governments have done the same.
The
crash, when it arrives, will take many people unawares and they will lose much,
and possibly all of their wealth. (The level of personal debt is so great now
that most people are already bankrupt, they just don’t realise it yet.)
Markets
and fiat currencies survive primarily on confidence. As long as the public
believe that a market will rise; as long
as they
believe that a fiat currency
has value, that confidence may assure the continuation. However, when the black
swan pricks the bubble, that confidence vanishes overnight.
If our
foresight is 20/20, we’ll take a lesson from a very consistent history and
admit to ourselves that a collapse is in our future and may even be around the
corner.
If
this is so, we might consider another “20/20” - the year 2020, which will be
the year that the new president will be up for possible re-election. If an
economic collapse occurs on his watch, it will matter little how well-intended
he might have been, or even how successful some of his plans might have been.
Any potential he might have had or accomplishments he might have made will pale
with the importance of an economic collapse. If it occurs on his watch, he will
vilified by all but his hard-core supporters.
In
such cases, history shows that the next leader that a people choose is always
from the opposing philosophy of the one that “caused” the crash. In 2020,
Americans can expect to see a major wave of preference for a collectivist
leader, a wave that first occurred in 1932 with the election of Franklin
Roosevelt, after a similar, but lesser crash.
It’s a
truism that the severity of a hangover is relative to the amount of alcohol
consumed the night before. In the present case, the high has been the most
extreme in history. The hangover can therefore be expected to be the most
prolonged in history.
Following
the crash of 1929, the hangover did not truly end until 1946. A seventeen-year
advancement of collectivism would therefore be likely to be the minimum that
can be expected for the US. By that time, conditions can be expected to be
truly Orwellian.
However,
this does not mean that all in the US are doomed. It only means that they would
be wise to consider what their choices are. They may choose to get out of the
market, or even to get out of the US and head for a country that is not in such
great danger of economic collapse. It’s a big world and the choices are many.
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Jeff Thomas is British and resides in the Caribbean. The son of an economist and
historian, he learned early to be distrustful of governments as a general principle. Although he spent his career
creating and developing businesses, for eight years, he penned a weekly newspaper column on the theme of limiting
government. He began his study of economics around 1990, learning initially from Sir John Templeton, then Harry
Schulz and Doug Casey and later others of an Austrian persuasion. He is now a regular feature writer for Casey
Research’s International Man (http://www.internationalman.com) and Strategic Wealth Preservation in the Cayman
Islands.
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The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The
views and opinions expressed in this material are those of the author or guest speaker, are subject to change and
may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy,
completeness, timeliness and reliability of the information or any results from its use.
