The DOW Jones Industrial Average set an all-time high last week at 19,758. But this was only a high, if priced in dollars. If priced in gold, it was down 58% from its January 2000 price. Let’s unpack this.
Most of us have thought there was only one way to look at the DOW. Here is how Yahoo Finance shows it:
Sure enough, it’s an all-time high. Let’s go back beyond the chart. On January 2, 1970, the DOW was 809. From that date, to Friday’s close, the DOW increased by 2,342%. But, this assumes a standard of measurement.
Suppose each year, the definition of a yard changed. In 1970, when the Kansas City Chiefs won the Super Bowl, suppose a yard was equal to 36 inches. Then, the next year, it was defined as 37 inches. If the definition of a yard increased 3% per year, the 2017 Super Bowl would be played on a field four times longer and wider than the 1970 game! How would this impact the game? What would this mean for NFL records? How often would stadiums have been reconfigured?
Suppose you built a house and, each day, your contractor changed the definition of an inch. Each day he gets out a bigger measuring tape. It wouldn’t be long before you’d file a lawsuit.
Suppose your doctor said you needed to lose weight. To do that, you bought a scale that daily changed the definition of a pound. The first day on the scale, a pound was 16 ounces. The next day a pound is 17 ounces. You continue to weigh your progress. You are satisfied with your weight loss program, even though, on your return visit, you can’t fit through the doctor’s door.
I can’t think of a standard of measure that changes. A yard is a yard, an inch is an inch, a pound is a pound. In fact, the U.S. Constitution instructs Congress to “fix the Standard of Weights and Measures” (Article 1 Section 8).
So, why is the dollar, the only measurement standard, which changes, by the minute?
On January 1, 1970, our U.S. money supply was $62 billion. Today, it is $3,649 billion. This is an increase of 5,786%. Over this same time period, the DOW increased 2,342% while the quantity of our money (the measuring stick) increased 5,786%. Here is how our money supply has grown:
If the dollar is not a fixed, reliable unit of measure, what would be? Measuring the DOW in relationship to the price of gold is not a perfect measurement. But unlike dollars—which can be created at no cost—the expansion of gold requires costly mining and labor. There is a fixed quantity of gold in the ground. Each year, manufacturing brings more of it into the marketplace. Even still, the expansion of gold is restrained and limited. The expansion of dollars is electronic, limitless, and at no cost.
Let’s create a timeline of 5,000 years. This is how long gold has been used as money. The dollar, as we know it, as fiat money, has only been used for 45 years (since 1971). So on our timeline of money and measuring world wealth, the dollar represents 1% of the timeline. Yet, as Americans, we assume this 1% of history is here to stay. Because we’re living in this history, we think this 1% of time is the most important for anticipating the future.
If we take the DOW and divide it by the price of gold, we get the DOW priced by gold. Here is the chart:
This chart shows us the DOW peaked just before the year 2000. Let’s test this idea. If you could go back in time, to December 1, 1999, would you buy the DOW at 10,998 or gold at $289 per ounce?
If we do the math, on December 1, 1999, it took 38 ounces of gold to “buy” the DOW. Today, with the DOW at an all-time high, it takes 17 ounces of gold to “buy” the DOW. Did the DOW increase in value or decrease?
Here’s another way to evaluate this: Since December 1, 1999 the DOW has increased 80% while gold has increased 302%. As an annual rate of return, the DOW has increased 3.5%, while gold increased 8.5%.
We’ve been brainwashed. Our government schools and corporate media, with the help of the government and financial institutions, have taught us to treasure dollars and ignore gold. We measure wealth in dollars. The DOW is priced in dollars. The nightly news reinforces the desire to own the DOW. Given the work that has been done to mislead us, our tendency is to ignore the historical performance and still choose the DOW. This is what we know. This is our comfort level. Comfort, is our danger. We need to think outside of the box; outside of the norm. While nearly everyone is cheering about a new high in the DOW, we need to recognize it is not up, but down.
“Dollar” Bill is a real guy, with real knowledge on our nation’s financial calamity, and real solutions for what must be done to dig ourselves out of the hole we are in. Due to his career, Bill must remain “disguised” to protect his position. “Bill” loves America, sees the impending cliff we are all headed towards, and hopes that by sharing his inside knowledge of the failed monetary policy in our nation, that a fiscal “nuclear” event can be averted.