The 50,000 Dow

It’s not so long ago, or so it seems to us, that Jim Glassman and Kevin Hassett’s prediction of a 36,000 Dow seemed a bit, how to put it, radical. Yet here we are with a 50,000 Dow, and the moment invites reflection. Can it be coincidence, after all, that the record high in the stock index comes at a time when the dollar is plumbing record lows in terms of the historic basis of monetary value, gold? A fiat dollar is fetching barely a 5,000th of a gold ounce in trading today.The dollar’s gold value has improved over the record low reached in recent weeks of less than a 5,500th of an ounce. Yet the decades-long debasement of the greenback since the dollar’s convertibility into gold was suspended in 1971 underscores how our fiat money is prompting the rise of asset bubbles. In other words, it’s less the case that the value of the assets is rising, and more that the dollars used to measure their worth are falling.The soaring Dow Jones Industrial Average is an example of how assets denominated in fiat dollars are an inadequate signal of real value. A 50,000 Dow corresponds, in terms of gold, to about 11 ounces in terms of today’s trading in the monetary metal. Yet in an earlier peak in the Dow, in September 1929, the index stood at 381 — the equivalent of 18 gold ounces. This was at a time when the dollar, under the gold standard, was worth a 20.67th of an ounce.The link between the Dow and gold is traced at, among other places, Macrotrends.net. The Dow’s value, as seen through the lens of gold, can be seen to have peaked in the summer of 1999, when the index surpassed 10,000 and the dollar’s value was about a 260th of a gold ounce. So the Dow corresponded to about 40 ounces of gold. This was a time when President Clinton and a GOP majority in Congress had for the first time in decades balanced the budget.By contrast the Dow reached an all-time low in 1980 at the tail-end of the stagflation that had been sparked by Nixon’s move to abrogate the Bretton Woods gold exchange standard. The Dow at the start of that year reached 875, while the dollar fetched around a 750th of a gold ounce. So the Dow in terms of gold was the equivalent of around but 1.2 gold ounces. Ronald Reagan’s election that year would help lead to the reversal of the dollar’s slide.The next 20 years would trace what these columns called “a steady and historic climb” in terms of the Dow’s value in gold. The years that followed have seen a decline in tandem with the plunge of the dollar’s gold value, even as the Dow as measured in fiat dollars appears to etch dazzling new highs. As this bubble expands, it’s no accident that Americans’ frustration over affordability and stubborn inflation is escalating, too.This frustration has been tracked in these columns by noting how inflation under our fiat money system creates the “illusion of wealth.” Feature, say, the pressure faced even by affluent Americans earning six figures a year. In 1971, a dollar was worth a 35th of a gold ounce, making that salary the equivalent of 2,800 ounces of gold. Today a six-figure salary is worth around 20 ounces of gold. The same debasement of the dollar is reflected in the soaring Dow.

The 50,000 Dow

The 50,000 Dow

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