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FreeMarkets (41.05)

America in Decline



October 07, 2009 – Comments (7) | RELATED TICKERS: GLD , ^DJI

I screwed up the last blog by mentioning INVESTING.  Of course everyone jumped on dividends.  This blog is NOT about INVESTING, it is about comparing the VALUE of the DJIA in 1929 to the value today.

FACT - at the DJIA peak in 1929 the value of the entire index was worth a little over 18 oz of gold.

FACT - today, the DJIA is worth a little over 9 oz of gold.

FACT - the power and wealth of America is eroding.  

Some people will argue the time periods used - saying 1929 was the PEAK at 381.  Fine - even if you use the PEAK of the DOW at 14,000, the FACT is the DJIA was worth a little over 14 oz of gold (about 25% less).

This is NOT a blog about putting your money into gold - gold is only the STORE of wealth.  It is a way of keeping your money from eroding due to inflation.

Therefore, over the past 80 years, the sum total of the 30 DJIA corporations, is worth LESS than it was 80 years ago.  The Federal Reserve system of inflationary increases in the money supply distort the value of the stock market averages and make many believe the value of assets are increasing, when they may not be at all.

Hope this clarifies things for everyone.


7 Comments – Post Your Own

#1) On October 07, 2009 at 2:43 PM, 1315623493 wrote:

FACT - Gold's value was fixed by the gold standard in 1929. 

FACT - Gold's value is now floated on the open market.

FACT - CEO versus worker wages has risen 992% from 1965 to 2005.  

Your gold versus DJIA comparison is flawed. Additionally, the wealth of America is not so much eroding, but rather, more wealth is being concentrated at the very top of the wealth bracket. Your entire argument needs work. 

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#2) On October 07, 2009 at 2:49 PM, MikeMark (29.04) wrote:

I agree there has been erosion of value due to the monetary expansion by the FED.

One thing though. The DJIA 1929 to now relation doesn't discuss dividends, taxes and any spinoffs that ocurred in the time between. Inflation wasn't the only asset exit from the DJIA then to now.



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#3) On October 07, 2009 at 3:09 PM, FreeMarkets (41.05) wrote:

BetapegLLC - you are correct, in all three facts.  I fail to see how the gold vs DJIA comparison is flawed.

I'm also not speaking about the wealth of the richest Americans, rather the value of our largest corporate institutions.

 MikeMark - I don't want to discuss DJIA as an investment, but the very concept of Total Current Value - which has decprecated significantly in the last 80 years.

Everyone reading this may have heard of prediction of DOW 39,000.  The early concept of that was simple - if the DOW components increase in total value by 1.5% annually and you take into account inflation, the DOW should have been at 39,000 long ago. 

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#4) On October 07, 2009 at 3:38 PM, 1315623493 wrote:

Your gold versus DJIA comparison is flawed because gold's price was fixed before 1971. You can't possibly use a gold versus DJIA ratio before 1971.

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#5) On October 07, 2009 at 3:53 PM, vriguy (61.73) wrote:

Your basic thesis is likely correct, but the DJI has replaced their component companies so many times in the last 50 years that your DJI:Gold comparison does not make too much sense.

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#6) On October 07, 2009 at 4:14 PM, 1315623493 wrote:

I'll give you this. America has shipped off a huge part of its manufacturing base to China, etc. America's dependence on crude oil is draining the country of billions a year. America's dogged determination to fight insurgencies in a feeble attempt at nation building is bankrupting the US treasury in the same it did the USSR. The massively increasing wealth gap is likely to cause economic and social upheaval. I agree with you. America is in decline. I just don't think your premises are correct.

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#7) On December 17, 2009 at 9:09 PM, awesomerob (< 20) wrote:

Take a look at the historic graphs of gold prices in all currencies simultaneously. You will find that the ones that abandoned the gold standard are the only ones that had high inflation during Jimmy Carter's term.

 I guess you can blame Carter's problem directly on Nixon for abandoning the gold standard.  Britain had high inflation also. Currencies that were based on precious metals were stable during that time with low inflation.

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