The Grand Delusion of the Double Dip

By: Jeff Berwick | Tue, Aug 3, 2010
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Watching American TV news or reading American newspapers can be dangerous to your mental and financial health. Whatever information they proffer is usually bereft with inaccuracies, fallacies and propaganda.

But, in order to understand what information the public is receiving it is important to take an hour or two per month to tune in to these propaganda dispensers, such as CNBC, Fox News, MSNBC, CNN and all the rest.

It is a difficult thing to do for a number of reasons. First, practically everything the talking heads say is either incorrect, a lie or something so unimportant in the grand scheme of things - an obvious diversion from the real important issues (Lindsay Lohan, seriously?) - that it is just painful to watch. And secondly, for those that are not used to imbibing this media version of raw sewage on a regular basis, the amount of flashing graphics, alerts and pace of the discussions and debates are so rapid-fire and more shouted than spoken that you can actually feel your heart start to race after watching just a few minutes of any "news" program.

But, in the interests of hearing what is being preached to the American sheeple this month, we tuned in for a few hours over the course of the last few weeks.

There is ALWAYS a buzz word that seems to be omnipresent as though it has been passed down from some overseer to all the media networks for that month to be repeated over and over. A few years ago it was the "goldilocks economy". Then a few months ago after the goldilocks economy had been eaten by the big bad wolf all the networks started yapping constantly about "green shoots".

Well, as anyone who watches this pablum knows, the green shoots are long past wilted and this month's buzzword is:


Yes, it's the double dip!

You couldn't turn the channel without one media pitchman or another blabbering on about how we may be re-entering a recession. Oh, what a debate over whether we were entering into a double dip recession!

Goldman Sachs' installed US Treasury Czar hit the talk show circuit to assure everyone that everything is fine. He proclaimed he not only didn't foresee a double dip, but, "an economy that gradually strengthens over the next year or two."

But, yet again, it is a classic case of propaganda and diversion. Why? Because we never even exited the last recession. It's tough to double dip when the economy is essentially a skydiver in freefall without a parachute!

Remember, all US government spending counts towards Gross Domestic Product (GDP). And with the US government stimulating like a prostitute on methamphetamines throughout 2009 and 2010 the GDP numbers are highly overstated to say the least. And that's before the government even begins to massage them in whatever way they deem fit.

At TDV we don't spend much time even looking at government supplied numbers as they are objects of some bureaucrat's imagination at this point. Instead we let the market tell us what is going on.

All one needs to do to see that we barely even had any recovery, whatsoever, even with all the quantitative easing and stimulation is to look at the Dow Industrial Index in terms of real money, gold, instead of in terms of the constantly expanding US dollar.

If you look at the Dow in terms of US dollars in the chart below then, yes, it does appear that we entered into a major decline in September 2008, when the Dow was at 11,500. It then went into a rapid crash, hitting its 2009 low of 6547.05 on March 9 before making what looks like a triumphant comeback and almost erasing all of its losses, hitting 11,309 in late April 2010.

What an amazing recovery it appeared to be. If you use the US Dollar as your basis for looking at the Dow Jones Industrial Index it appears as though the Index plunged 43% in the span of six months and then had a spectacular rebound, rising to within 5% of where it began its slide a year and a half earlier. And now, as you can see, since May the index is off about 5% and this is what has everybody fearing the double dip, possibly heading back down to its lows below 7,000 again.

But this is why it is incredibly foolish and dangerous to use the US Dollar, or any fiat currency, as your sole basis for evaluating assets. If you look at the Dow index in terms of gold in the chart below there was hardly any recovery at all.

As you can see in the chart above, compared to gold, the Dow did begin to decline from a ratio of 14:1 in September, 2008 and bottomed at about 7:1 in May, 2009. This matches up similarly to the drop in the Dow in US Dollar terms - both show a drop of 40-50%. However, look at the so-called recovery since May of 2009. Since it hit its low of 7 it rebounded only slightly and, in fact, has been meandering around 8 for the last 3 months. So, in gold terms, the Dow only experienced about a 15% increase in the last 16 months. That's a far cry from the 95% increase registered in dollar terms.

As with all things economic and financial in the US, the picture has been totally skewed by the ever shrinking dollar. Consider that the Dow/Gold ratio in 2000 was 43.7. In other words, in the last ten years, in terms of real money, the Dow is down 81%! A virtual wipe-out. Catastrophic. And something that matches much more the current economic climate in the US, with its real unemployment rate, as calculated by in the chart below, at nearly 22%.

So, should we all be talking about a potential double dip? Double dip?? The Dow is down 81% in the last decade and US unemployment is at nearly 22%. More like Double Absolutely-Completely-Devastated! The US, in fact, has just completed its first lost decade and there is no hope on the horizon that anything is going to change anytime soon. Just look at this chart of employment "growth" comparing past decades to the 2000s.

And the scary part is, this still isn't over and likely won't be over until we hit a Dow/Gold ratio of 1. Whether that means the Dow at 3,000 and gold at $3,000 or the Dow at 50,000 and gold at $50,000 will just depend on what Helicopter Ben Bernanke and his criminal crew of cohorts does in the coming months.



Jeff Berwick

Author: Jeff Berwick

Jeff Berwick
Chief Editor
The Dollar Vigilante

Jeff Berwick

Anarcho-Capitalist. Libertarian. Freedom fighter against mankind's two biggest enemies, the State and the Central Banks. Jeff Berwick is the founder of The Dollar Vigilante, CEO of TDV Media & Services and host of the popular video podcast, Anarchast. Jeff is a prominent speaker at many of the world's freedom, investment and gold conferences as well as regularly in the media including CNBC, CNN and Fox Business.

Jeff's background in the financial markets dates back to his founding of Canada's largest financial website,, in 1994. In the late '90s the company expanded worldwide into 8 different countries and had 250 employees and a market capitalization of $240 million USD at the peak of the "tech bubble". To this day more than a million investors use for investment information every month.

Jeff was the CEO from 1994 until 2002 when he sold the company and still continued on as a director afterwards until 2007. Afterwards, Berwick went forth to live on and travel the world by sailboat but after one year of sailing his boat sank in a storm off the coast of El Salvador. After being saved clinging to his surfboard with nothing but a pair of surfing shorts left of all his material possessions he decided to "live nowhere" and travel the world as spontaneously as possible with one overarching goal: See and understand the world with his own eyes, not through the lens of the media.

He went on to visit nearly 100 countries over four years and did and saw things that no education could ever teach. He met and spoke with a plethora of amazing people, from self-made billionaires to some of the brightest minds in finance - as well as entrepreneurs from a broad range of backgrounds and locations from tech companies in southern China to resource developers in Mongolia, Thailand, Russia and Chile. He also read everything he could find on how the world really works... politically and financially. A pursuit he continues to this day.

He expatriated, long ago from his country of birth, Canada, and considers himself a citizen of the world. He has lived in numerous locales since including Los Angeles, Hong Kong, Bangkok and currently lives in Acapulco, Mexico and is building a home in Cafayate, Argentina. In essence, everything he writes about here for TDV he has done or is doing.

As well, during his travels, both real and virtual (through the internet), he met some amazing people who have a similar shared vision of what is currently going on in the world and enticed them to come aboard TDV and provide their own brand of analysis.

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