The fall of the Berlin Wall was a public declaration that the communist experiment had failed.
The utopian concept of equality in an unequal world was flawed from the start. However, the resolve of the State to alter the laws of human nature meant sceptics had to wait 70 years to be proved correct.
The Soviet experiment taught us major trends in large economies can take decades to reveal the truth.
Nixon’s closure of the ‘gold window’ in 1971 was another key moment in economic history. Free from the remaining shackle of financial responsibility, governments began an experiment to create wealth out of thin air.
When Nixon abolished the gold standard he said:
‘…if you are among the overwhelming majority of Americans who buy American-made products in America, your dollar will be worth just as much tomorrow as it is today.‘
The American public bought this propaganda hook, line and sinker.
The following chart shows the cumulative effect of inflation in the US since 1913 (the founding year of the US Federal Reserve):
Source: www.inflationdata.com
From 1913 to 1970, the gold standard kept inflation’relatively’ in check. After 1971, free from the gold standard ‘ball and chain’, it’s a completely different story.
Nixon Released the Inflation Genie
So much for a 1971 dollar being ‘worth as much tomorrow as it is today‘.
The prosperity we’ve enjoyed over the past 42 years has been a fraud. Inflated dollar values don’t necessarily mean we’re richer, it just means we need more inflated dollars to maintain our standard of living.
Given that this is the only economic model the vast majority of people have grown up with, we don’t know any better. The establishment has trained people to think modest inflation and constant growth is the sign of a healthy economy – hardly anyone ever questions this belief.
Yet common sense tells us trees do not grow to the sky forever. The earth has a finite amount of resources to feed, clothe and house a certain amount of people. At some point (and some argue we are already there), for the sustainability of the planet, we must reverse this growth.
This notion is completely at odds with the political and corporate talk of growth, growth and more growth.
North Korea spreads its state propaganda to its citizens and we in the ‘informed West’ mock their gullibility. Yet the West faces State run propaganda too – bogus inflation rates; doctored unemployment figures; manufactured GDP stats; Budget figures that don’t reveal the true state of affairs, and so on.
Mainstream media accepts all this at face value. The masses wrongly believe government and its central bank henchmen have things under control. Mission accomplished.
Maintaining the illusion of growth (the only system we’ve ever known) is vital to these Wizards of Oz. They’ll do and say anything to achieve this outcome. The more desperate things become, the more desperate their actions become (indefinite and unlimited money printing is pretty desperate).
The US share market (as measured by the Dow Jones & S&P 500) has reached record highs. But it’s on the back of zero bound interest rates and legally counterfeited dollars.
But most in the mainstream ignore these facts. The US Fed, their cheerleading economists and the investment industry use the market’s phony record as proof of a US economic recovery.
If you believe the rhetoric, a new bull market awaits us. But the only bull that waits is more policymaker spin.
To reduce the chances of ‘static’ (or truth) ruining the message, Chairman Ben Bernanke – according to Bloomberg on 20 March 2013 – is…
‘…tightening his control of Federal Reserve communications to ensure investors hear his pro-stimulus message over the cacophony of more hawkish views from regional bank presidents.‘
(Bold emphasis is mine.)
Bernanke is taking charge of the Fed’s propaganda machine to make sure any dissenting voices are no more than a whisper in the wind.
The Bear Market Trap
So, how do we sort through the public misinformation to get the private knowledge to protect our investment capital?
Mark Twain famously said, ‘History doesn’t repeat, but it does rhyme.‘ Patterns of past behavior give an insight into what the future may have in store.
The following chart is the Dow Jones Index from 1900 to Nov 2011. The chart clearly shows that in the very long term (60+ years) the market does indeed go up…
The boxed areas are the times when the market ‘catches its breath’ before getting the energy to go higher. These periods are known as ‘Secular Bear Markets’ – they typically last 15 to 20 years.
The thing to remember about secular bear markets is they deliver far more pain then they do returns.
If your investment timeframe is 20 to 30 years, you can’t afford to walk into a secular bear market trap.
The task of the current secular bear market is to unwind the excesses of the greatest credit bubble in history. This is how systems work – they breath in and they breath out.
The Ruling Class is wildly trying to thwart the natural processes of markets and economies. History shows printed money has never achieved this aim.
Who do you believe – history or the spin-doctors (with their own history of deception)? Choose carefully; your investment capital depends on it.
Vern Gowdie
Contributing Editor, Money Morning
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