Economics 102: The Real Dow

Good column on why basics of economy are messed up.

“… Zimbabwe's stock market soared during 2008, even as the shares traded there were becoming worthless. What matters regarding the future of the economy is the Real Dow, which is the Dow divided by the price of gold… the Real Dow is lower now than it was in January 1954, and it is down by more than 80% from its peak, which was reached under Bill Clinton…. Prosperity is always accompanied by a rising Real Dow. A falling Real Dow signals economic stagnation. Despite the nominal Dow's impressive close on Friday, the Real Dow is still 18% lower than it was when Bush 43 left office… the biggest difference between 1966 and 2009 was caused by malinvestment. In 1966, we experienced a real gain in the value of our existing capital of 1.7%, while in 2009, America was forced to write off prior malivestments equal to 11.8% of GDP…. In 1966, we had a stable dollar under the Bretton Woods gold standard. In 2009 and the years leading up to it, we had an extremely unstable dollar under Federal Reserve Chairmen Alan Greenspan and Ben Bernanke….”

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