Monetary Froth, or How Inflation Deceives Us

Inflation in the US deceives us. Here’s an example.

The two charts below show the S&P 500 monthly closing prices since 1950. The first chart isĀ in raw dollars; the 2nd chart is adjusted for inflation and shows the value of the S&P500 in 2012 dollars.

(I used the BLS’s inflation calculator to do the adjustment. Both charts are logarithmic and use base 10.)


The top chart appears to depict an economy which has been steadily growing, albeit with a few bumps and hiccups along the way. The bottom chart demonstrates that the economy’s growth is not really as steady as we’ve been led to believe and in fact is mostly illusion.

From the high around 1968, (bottom chart, blue arrow), to the low around 1983, the SP500 declined in real terms to levels not seen since 1955. We didn’t recover 1968-level valuations until the early 90s, and didn’t start gaining over those levels till 96. Then we returned to the mid-90s level valuations in 2002 and again in 2008.

The growth periods were from the end of the war till 68, and from 94 to 2000. Everything else is smoke and mirrors.

You can see the economy attempted to recover the 1968 high in the 72-73 time period, but Nixon decoupled the dollar from gold, thus unleashing the hounds of inflation for the next 20 years. The internet boom seemed to result in real growth in the late 90s, but we crashed back to those 68 levels in 2002 and below them in 2008.

Starting in 2001, the Fed lowered interest rates 14 consecutive quarters, driving money out of the bond markets and into equities. When the Fed-induced housing bubble burst in 2008, the Fed then dumped trillions of dollarsĀ into the coffers of the Too Big To Fail banks. When that failed to get the economy going, they repeated the folly of the 2002 recession and lowered interest rates back to essentially zero, again detroying the Bond Market and driving money back into equities.

The only actual economic growth this country has experienced since the end of WWII are the years from the end of the war till 1968, plus a little bit of growth in the late 90s. Everything else has been monetary froth.

Big Banks – Big Frauds

Last week, we reported that JPMorgan was found to have committed fraud in foreclosure proceedings in Florida. Early this week, Ally Bank, (which is the name GMAC Finance adopted to try to escape the stink of the name “GMAC”), suspended foreclosure operations in 23 states when it was disclosed that the bank forged affadavits in its foreclosure activities. Today, WaPo reports that Bank of America has also suspended foreclosure operations in 23 states because – as the article says – it is examining “whether it rushed the foreclosure process for thousands of homeowners without reading the documents.”

So let’s tally this up: in the last week, JPMorgan and its Washington Mutual subsidiary were proven to have committed fraud, GMAC finance was proven to have forged affadavits and BofA, (which swallowed both CountryWide Financial and Merrill Lynch), is pretty damn sure they did the same thing. Anyone want to take bets on whether or not Goldman Sachs, Morgan Stanley, Wells Fargo, Citibank, Fannie Mae, Freddie Mac and a host of other “Too Big To Fails” also committed fraud? No? Didn’t think so.

The big banks and their accomplices in the Congress, the Treasury and the Federal Reserve have raped and pillaged this country and they will continue to rape and pillage because that is what they do. The government will not stop them because the government is Wall Street’s whore. The regulators will not stop them for the same reason. The Federal Reserve will not stop them because the Fed’s charter is to preserve the banks. There is only one way to stop them and that is to starve them. If you want to know what to do, then it is time to resist.

Stop paying your mortgage if it is serviced by any of these bastards. Stop paying credit card bills. Keep that money. Refuse to vote for any congressman that voted for bailouts. The only way to take them down is to starve them out. It is time for the middle class of America to lay siege to the bastards on Wall Street and in Washington – both Democrat and Republican – and starve them out. Don’t give them your money, your labor, your time or your vote.

You can no longer keep your freedom and your credit rating. It’s one or the other folks. I don’t care if you can afford to pay off those bills. You are collaborating with the enemy if you pay off bills to any of the Too Big To Fails.

Starve them out.