10/13/10 Laguna Beach, California – During yesterday’s trading session, the Dow Jones Industrial Average inched ahead 10 points to a new five-month high of 11,020. The financial news services attributed the advance to new disclosures from the Federal Reserve that it would continue debasing the dollar. True.
“Traders pushed shares higher Tuesday,” The Associated Press explained, “after minutes from the [September 21] Federal Reserve meeting kept hope alive that the central bank would take more action to stimulate the economy. The Fed had said…it was concerned that inflation was too low, and suggested it could step up its purchases of government bonds and take other action to encourage lending.”
That’s right; the guardians of the dollar’s purchasing power are concerned that they might not be debasing the dollar fast enough to “stimulate the economy.”
Such is the popular wisdom that guides America’s New Economy. Central bankers and politicians may still pay tribute to the traditional wealth-generation processes of capital accumulation and re-investment. But when these traditional processes fail to produce the desired short-term results, the shamans of the New Economy do not hesitate to implement the traditional wealth-destruction processes of debt issuance and currency debasement…and preferably, both at once.
Debt and debasement are essential, they argue, to stimulate the economy until the private sector re-establishes itself.
This theory is not without flaws.
The private sector has a very tough time re-establishing itself when the public sector is busy moving the goalposts farther down the field. Amassing debts and debasing the currency might produce a short-term economic benefit, but over the long term, such processes undermine wealth creation. In fact, the adverse effects are already evident. The US economy hasn’t produced a single net new job since 1998. At the same time, per capita wealth has barely budged over the last ten years.
Back in 2000, the US was the richest country in the world, based on wealth per adult. Ten years later, the US is clinging to seventh place.
If we expand our top-down analysis to include ALL Americans, the national wealth picture becomes even more troubling. According to www.usdebtclock.org, Americans, on average, owe $52,501 in personal debt. In addition, each American’s share of the national debt totals about $176,173. Together, these direct and indirect liabilities total $228,674.
On the other side of the ledger, Americans, on average, possess net savings of…are you ready for this?…$979. Looking at these numbers, words like “insolvent” come to mind.
Eric Fry
for The Daily Reckoning
Eric Fry
Eric J. Fry, Agora Financial’s Editorial Director, has been a specialist in international equities for nearly two decades. He was a professional portfolio manager for more than 10 years, specializing in international investment strategies and short-selling. Following his successes in professional money management, Mr. Fry joined the Wall Street-based publishing operations of James Grant, editor of the prestigious Grant's Interest Rate Observer. Working alongside Grant, Mr. Fry produced Grant's International and Apogee Research — institutional research products dedicated to international investment opportunities and short selling.
Mr. Fry subsequently joined Agora Inc., as Editorial Director. In this role, Mr. Fry supervises the editorial and research processes of numerous investment letters and services. Mr. Fry also publishes investment insights and commentary under his own byline as Editor of The Daily Reckoning. Mr. Fry authored the first comprehensive guide to investing internationally with American Depository Receipts. His views and investment insights have appeared in numerous publications including Time, Barron's, Wall Street Journal, International Herald Tribune, Business Week, USA Today, Los Angeles Times and Money.
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In America people are obsessed with two and only two things: money and religion.
For religion things are in good shape. There are hundreds of organized religions, and worshipers reach 98% of the population. There isn’t a day go by without millions praying for miracles.
As to money, everybody wants ever more and more of it. Everything has a money angle, even religion. Big Biz and Big Gov throw money around by the billions, lately by the trillions.
So how come Americans managed to lose so much money?
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