Tuesday, June 10, 2008

The Ugly Truth About Inflation

So here is the ugly truth about inflation. This is not some 5 year aberration. This is not some minor statistical blip. This is a 41 year picture of the lie of generalized investment as a means to retirement comfort. (Click to see enlarged version.)

The chart to the left here shows two plots. The blue-green plot is the unadjusted DJIA from January 1967 to April 2008. The orange-red line is the inflation adjusted DJIA over the same period.

The scale on the left Y axis covers the actual values obtained by the DJIA. The scale on the right Y axis is the inflation adjusted value. There are lots of interesting observations in this chart.

First, note that $1000 invested in January 1967 would have taken until sometime in mid-1995 to even recover its base value after adjusting for inflation. Second, note that the unadjusted chart implies that new highs have been reached in the last few years, yet after adjustment we see that we have not yet regained the high point of January 2000. The third thing to note is that the only real growth in the DJIA over 41+ years was the five year period from 1995 to 2000.

This chart exposes the lie of generalized investing. The promise is that you invest and it will all even out. Yeah, really, sure. The truth is that real opportunities to get ahead come around once in a lifetime and then are gone until the next generation gets a shot at some random point in the future. A 41 year time chart does not lie. This chart covers someone who graduated high school to today and who has trusted the market all along. There are 36 years of losses or no gains in that market versus 5 years of real gains.

People who are going to invest and who trust "financial advisors" are being taken to the cleaners by liars and shills. Only by really understanding your target market and working it like a real job can you have any hope of getting ahead by investing. This is why the common man and woman was long better served by simple saving rather than complex investment schemes. However, the banks were not content to let all those savings sit at rest and have created fractional reserve lending and participated directly in a sustained multi-generational program of deceit via inflation to rob the common man and woman of their savings.

And they have succeeded. They have succeeded because you (and you and you and you) have allowed them to do so. Only one man has dared to stand up and run for president while at the same time declaring the true solution to our financial woes - Ron Paul. If you support anyone other than Ron Paul you are voting for a liar, a shill, and someone who is complicit in this multi-generational program to rob you blind. If you vote for anyone other than Ron Paul, you deserve whatever fate befalls you.


Adam said...

Ron Paul-

"wants America to pull out of the United Nations, NATO, the International Criminal Court, and most international trade agreements. He wants to abolish FEMA, end the federal war on drugs, get rid of the Department of Homeland Security, send the U.S. military to guard the Mexican border, stop federal prosecutions of obscenity, eliminate the IRS, end most foreign aid, overturn the Patriot Act, phase out Social Security, revoke public services for illegal immigrants, repeal No Child Left Behind, and reestablish gold and silver as legal tender." (Salon article)

There are good ideas amongst the craziness, but there's a whole lot of craziness. Add in his incredibly racist newsletter from the 1990's (with his name on it, but not his words, if you take his word for it).

He's at best a libertarian isolationist distrustful of all government. I agree that Americans have some lousy choices, but I'd say the first qualification for taking charge of the government should be the belief that the government can do something useful. Paul is far to close to the Republicans on this front, the "government bad, privatize good" attitude that has decimated the Us government by chasing away as many useful and competent people as possible.

But if my best choice for president was a Democrat, I might take guys like this seriously too (I'm not American).

Greyzone said...

1. UN - useless
2. NATO - not needed and Europe can pay for their own defense
3. ICC - useless
4. FEMA - useless (witness Katrina)
war on drugs - useless
5. Homeland Security - fascist idiots
6. Mexican border - it's an open issue, not that we shouldn't have Mexicans working in the US (and Americans working in Mexico) but they all should be legal.
7. Federal prosecution of obscenity - has accomplished exactly what?
8. foreign aid - we're BROKE
9. overturn the Patriot Act - damned right! Too many intrusions into civil liberties there!
10. phase out SS - it's going broke anyway and a Ponzi scheme should never have been allowed as a "retirement" program in the first place
11. revoke public services for illegal immigrants - yep, legal? fine. Illegal? No services.
12. No Child Left Behind? - I know too many teachers who will tell you what a waste of time that is.
13. Gold and silver as legal tender? You mean what the US Constitution originally required so that we wouldn't debase the currency?

Take a good look at this following chart (it's a link to a PNG image):
US CPI since 1800

The Federal Reserve was created to stop the panics that occurred between 1800 and 1913. Look on there and look how "bad" those panics were versus the wholesale debasement of the dollar since 1913 when the Fed took over.

If you and your country want to play world emperor, go for it. The US should never have gotten into that mindset and it needs to get out of that mindset. We need to stop paying the policemen bill for Canada, Europe, Japan, Korea, and everyone else. And that also means we stop interfering in other nations' business. The rest of the world got along fairly decently with the US when we kept to ourselves. Countries like Iran would probably appreciate it if we didn't try to overturn their duly elected governments every 30 years too, eh?

fallout11 said...

I agree (and disagree) with both Adam and Greyzone regarding Ron Paul. That said, he hasn't an icecube's chance in hell of winning the election in November, no more than Kucinich (another actual patriot) has.

Grey, I saw a similar chart to yours a while back covering the Dow for the last 100 years. Same result. Barely beats inflation over a full century period. Longterm buy and hold investing is for suckers. Remember chaps, the markets are a net sum game, in order for someone to gain, another must lose. That is the nature of such transactions.

Finally, and this, dear friends, was during a century of unprecedented wealth, growth, and resource abundance. Given a future lacking in all three, what baleful horror must the next 100 years look like (or even the next 41)?

Adam said...

1. UN - only made useless because so many member countries ensure it is (I'm looking at you, US).
2. NATO - Agreed, NATO isn't so relevant.
3. ICC - again, only useless because countries like the US refuse to allow it to function.
4. FEMA - only useless when run by total incompetents. Countries should be able to respond nationally to emergencies.
-war on drugs - useless - Agreed.
5. Homeland Security - fascist idiots - Agreed
6. Mexican border - military guarding the border is insane...it's a big border.
7. Federal prosecution of obscenity - has accomplished exactly what? - agreed.
8. foreign aid - needs to completely reworked or stopped, so agree on some level.
9. overturn the Patriot Act - Yeah
10. phase out SS - good luck with that one.
11. revoke public services for illegal immigrants - almost unworkable in practice, unless you want MORE government traccking.
12. No Child Left Behind? - Agreed
13. Gold and silver as legal tender? might come to this anyway
14. Eliminating the IRS is crazy as I see it - someone has to be in charge of collecting and enforcing taxes. If the IRS doesn't work as well as it should (I honestly don't know), then fix it.

Oh, and the US isn't paying anyone's defense bill, they are paying our offense bill. Canada only need defending from the US, really. Europe needs protection from each other? The US can stop leading foreign wars, and I'm thrilled. But don't call it defense.

I think my main point of disagreement is that Ron Paul (and you, I think) see government as not working, and want to stop wasting the effort. I see it not working, and retain enough optimism to think it should just be run better.And the looking inward tendency worries me, since it went so poorly in the WWI-WWII era.

As for currency devaluation, well, is there a reasonable way to reverse the process? Again, I'm curious, how could this be done?

fallout11 said...

Looking inward tendencies are hallmarks of empires in periods of decline, historically speaking.
They become introspective, isolationist, repressive, pious, and nostalgic (per both Tainter and Diamond), all symbolic of internal decay.

"But no one expected the Spanish inquisition!" - Mel Brooks

Adam said...

Well, the US isn't isolationist yet, at least in the traditional "let's leave other countries alone" sense. They've gone a baffling new route, which is somehow isolationist and interventionist at the same time.