While there are limitations to an index based on such a small number of companies, the Dow gives a good pulse of economic health in the big picture.

I was searching around for some information on the DJI adjusted for inflation the other day, and came across this little gem.  Most striking is that the real annual return of the Dow over 80+ years have been approximately 1.64% after taking inflation into account.

Not surprisingly, 3 large bubbles are visible, poking above that 1.64%/year curve.  The first is of course the boom and bust that led to the Great Depression, a sharp spike in both directions and lasting less just a few years from about 1925-31.  In the mid 50’s, a new bubble begins to form, peaking about a decade later and sliding down as fast as it came up for another 20 years, finally hitting a bottom in the late 70’s/early 80’s that is almost as low on the scale as the Great Depression.

By around ‘95, another bubble takes off like a bat out of hell, slows a bit in the wake of the “dot-com bubble” and September 11, but promptly returns to its previous high in late 2008… which is when the bottom fell out.

It would appear, looking at this, that we’ve still got a few thousand points to shed before we hit bottom.  It remains a mystery how few people saw this crisis coming.  Looking at this chart in 1999, it should have been obvious a massive bubble was bound to burst any day – but the financial wizards saw no end in sight to rampant growth?

Not wanting to repeat the mistakes that created Japan’s “Lost Decade”, both the US and UK governments have been moving quickly, first lowering interest rates and now pushing government dollars into the economy via special projects, in the hopes of the money making its way to businesses and consumers.

The major concern with pumping government money into the economy is always inflation.  Given that we are potentially facing serious deflation in the US in the near future, this is primarily a long-term concern.  Governments appear to be counting on the economy turning around quickly, allowing a quick return to a smaller money supply to restore balance and stave off inflation.

Of particular interest to America is the fact that the Bank of England, the counterpart of our Federal Reserve, was nationalized in 1946.  Our Federal Reserve, however, is not completely state-owned.  With all the discussion of nationalizing private banks, perhaps we should be looking first at the necessity of completely nationalizing or even eliminating the Federal Reserve.

Section 8 of the United States Constitution authorizes Congress:

“To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures”

When the Federal Reserve was established in 1913, it was decided that a nice little loophole there meant that a quasi-public entity could control the creation and value of paper money, and since then electronic money, since these aren’t “coin”.

Shouldn’t creating and regulating the value of paper and electronic money be just as much considered to be “coin[ing] Money” and therefore be as much under the control of Congress and the Treasury?  It might be beneficial to be able to increase the money supply in the US without having to pay interest to private banks.