Last week, the Liechtenstein based investment company Icrementum AG published the 2020 edition of their annual In Gold We Trust research note. The whole paper is worth a read (you can download the full 356 page document here), but, for us, there is one chart that stands out.
It shows how many hours, on average, an American must work to afford to buy the S&P500 index and is printed above.
When President Nixon ended the gold standard in August 1971, the index was around 20 and had been range-bound for a century. But through the 1980ies it rose steadily, to end the decade just around 30 and look at what happened then: interrupted only by the dotcom crash in the late nineties and the financial crisis of 2008, the index has kept rising, and now stands at just under 120 – four times the historical average. Much of this is caused by the meteoric rise is in the FAANG stocks (Facebook, Amazon Apple, Netflix and Alphabet), but the underlying explanation is the uninhibited inflation of the money supply. Ultra-loose monetary policy has led to asset price inflation. While the world was focussed on consumer prices and therefore concluded that price inflation was low, the newly minted money was making its way into financial assets and causing an unprecedented bull market. And since the financial crisis in 2008, in what was first a “jobless” recovery and since became a slow but uninterrupted expansion, wage growth was anaemic.
The result is what the chart above shows so powerfully: a massive gap in the fortunes of Wall Street and Main Street. This is why the workers got left behind, and this is why they should be angry. The left has its sight set on redistributive policies and dismantling of capitalism, but the reason inequality is rising is to be found in the construct of modern fiat currency and central bank policy.