When Stock Markets Are Wrong

A soaring stock market is celebrated as a sign of American economic health. Economic history shows this is an error.

When Stock Markets Are Wrong

Never mind that the wealthiest 10% own 89% of all US stocks, a bigger problem is what perma-highs say about the dollar.

Stock markets skyrocket as currencies fail.

These charts show what an economy 'crashing upwards' looks like:

100 years ago Argentina was one of the richest countries in the world. Since then, it has suffered multiply hyperinflation episodes and has replaced its currency five times.

Argentina Stock Market during 

Extreme currency instability in began in Venezuela during their 2016 political crisis. Some blame their Socialist government. Others blame American interference. Whatever the cause, Venezuela's stock market soared as people were forced to eat rats and dogs.  

Last year Iran's parliament voted to slash four zeros from the national currency (the rial) to fight hyperinflation caused by US sanctions and Covid-19.

Zimbabwe briefly had the world's best performing stock market as their currency hyper-inflated.

The Weimar Republic's stock market soared during their hyperinflation in the 1920s.

Why It Happens

Inflation means that a currency is losing value over time. The higher the inflation rate, the more the value of a currency is being eroded.

People experience prices going up and up and up … Often without seeing underlying monetary causes.

Inflation – or fear of inflation – causes people to swap currency for harder assets like real estate, precious metals, and stocks.

Hyperinflation is unrestrained price increases –typically at rates of over 50% every month. This results in mass panic as people try to dump currency for whatever can be bought.  

Is the United States going the same way?

Very high inflation is not a typically a 'first world' phenomenon. But the fact is, the US is taking on characteristics of its South American neighbours.

Three big indicators warn of a collapse that has already happened for millions of Americans:

  • real incomes are shrinking,
  • life expectancy is falling, and
  • 80% of people live paycheck to paycheck.

And the main reason economies did not collapse further is a global money printing binge led by the US.

This chart shows the rise of the US money supply:

Money-printing drives inflation and sometimes that becomes hyperinflation.

This could be the early stages of hyperinflation. I don't predict that, but very high inflation is likely: devaluing the dollar by 10–20% a year is the most realistic path for the US to defuse its enromous debt bomb.

US officials claim that the current inflation is 'transitory' and things will soon return to normal after Covid, supply change issues and climate change.

It could be true, but I doubt it.

But if it isn't true, our leaders cannot admit that until too late. As former EU commission Jean-Claude Juncker said in defense of Europe's single currency:  

When things get serious, you have to know how to lie.

We watch.

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