The Dow hit a new record…surely this is good news, right?
We’ll answer our own question, emphatically: Yes and No.
Sorry to seem like a fence-sitter here, Fellow Reckoner…but facts matter. And all the facts aren’t quite in yet. The run up in stocks has been just one of the effects of Bernanke’s loose monetary policy.
As readers of these pages well know, the Fed Head has pinned interest rates to the floor, forcing savers out of traditionally secure investments and into the go-go world of high risk speculation. Everybody is in the pool, in other words. No wonder the water is rising!
Markets may indeed be ‘deep and liquid’, but that’s merely an assessment of quantity, not quality. In other words, it’s tough to tell whether stocks are rising because of strong economic fundamentals…or because a bunch of chubby tourists piled into the shallow end.
Moreover, records only really matter when you have a reliable unit of measurement in which to calibrate them. Stocks are most commonly measured in dollars. But is a dollar a reliable unit of measurement?
Bernanke and his fiddlesome antecessors at the Fed were charged with maintaining the greenback’s integrity. They’ve been on the job for an entire century. And yet, weighed against gold, the once-mighty buck has lost roughly 97% of its value. And now stocks, measured in shrinking dollars, are proclaimed to be at an all-time high. And the Feds get the credit! What kind of Procrustean scam is this?
It’s as if, while enduring rampant hyperinflation, Zimbabwean businesses were to gloat about ‘record profits’ because they sold a loaf of bread for a million Zimbabwean dollars.
Never mind that it took a trillion of them to buy a roll of toilet paper, a fact that probably inspired more than a few people to simply cut the middleman out altogether, giving their single-ply currency the treatment it sorely deserved.
Or, to switch metaphors, it’s easy to declare yourself a giant when you shave 97% off the value of a meter. Measurements matter, in other words.
Tellingly, US stocks are NOT at an all-time high in terms of gold…or oil…or virtually any other commodity of real world value. They are, however, at an all-time low…adjusted for bitcoin.
In the end, there’s no problem so bad that a Central Planning committee can’t get together and make it still worse. These are the men and women who arrive at the construction site with a wrecking ball, and promptly get to work.
for Markets and Money
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