Can the Dow Jones Industrial Average and Age Demographics foretell Economic Depression?

What do the DJIA and the demographics of people between the age of 45 and 54, and a financial depression all have in common? Quite a bit, according to Daniel A. Arnold, author of:

The Great Bust Ahead: The Greatest Depression in American and UK History is Just Several Short Years Away.
This is your Concise Reference Guide to Understanding Why and How Best to Survive It (Paperback)

Product Description
The Great Bust Ahead is a concise, straight to the point short book laying out in stark terms the case for a coming depression of historically unprecedented magnitude. It will be worse than the 1930s, beginning nominally in 2012, but perhaps as early as 2009-2010 and lasting up to thirteen years.

Centered on hard fact demographics, the book boldly claims that the data presented are so irrefutable, that the outcome predicted by the book is equally as irrefutable. The compelling proof presented accurately accounts for the detailed trend of the economy from 1920 to today (something never before accomplished), and projects out to 2030.

The book is very easy to read and understand, and requires no prior knowledge of economics. Down to earth things the average person can do to prepare for what is coming are covered. A summary of the catastrophic domestic social and international consequences is offered.

January 2009 Update:

1. First, read the 2007 Update below.

2. 2008 was the victim of a self inflicted sub-prime financial crisis. This has nothing to do with the demographics based massive depression that is yet to come, as described in the book. The sub-prime consequences are however very similar though mild so far compared to what is coming our way. The book clearly spelled out that along the way unpredictable short-term (1 to 3 years) disruptive events could happen. The sub-prime crisis is just that. It should be regarded as the warmer upper or hors d'oeuvre for the big one that is now rapidly closing in on us all.

3. The great unknown at this point is whether the sub-prime based crisis will drag on beyond 2009 and then blend into the demographics based massive decline which, per the book, could begin as early as 2009-10. Being short-term by definition, this period is totally unpredictable.

4. There is the strong possibility that we will see an interim recovery manifested as a last hurrah rally in 2009 of perhaps 30% on the Dow after a new low of around 7,000. However, this is very speculative. The only historical certainty is that in the long-term the Dow always returns to the demographic. This lends some credence to such a rally as the immutable demographic, as you can see from the chart, remains in a very strong upswing as it moves toward its 2012 peak before crashing. Also waiting in the wings ready to surge back into the markets are trillions of dollars earning very little in money market funds.

October 2007 Update: In 2002 when this book was published, in addition to the massive depression beginning around the end of the decade, it forecast:

1. The economy, as reflected by the DJIA, would resume its upwards march in late 2002 or 2003. This is exactly what happened.

2. The DJIA would have a snapback to 13,000 to 14,000 and the FTSE to 6,000 to 7,000 by 2004, but delayed possibly by wars/politics/terrorism/scandals. This is exactly what has happened. Although the full snapback has been delayed for the reasons described, the DJIA has now closed over 14,100 and the FTSE over 6,700.

3. The DJIA returns from 2003 to 2012 would average a historically long-term normal of 7% to 8%. So far, with the delayed full snapback for the reasons described, DJIA actual returns have averaged a more modest 5.8%, as would be expected.

4. Interest rates would increase from 2003 onwards. This is exactly what has happened.

From the Publisher
If there ever was a book that should be read by the entire adult population, this is it. The events described in The Great Bust Ahead will be the greatest story of the first quarter of the twenty-first century, if not the century. All of our lives are going to be dramatically affected beginning in just a few years from now.

The depression of epic proportions that is predicted has THIRTY MILLION unemployed and stock market losses of over eighteen TRILLION dollars. The book leaves you with the conviction that for the first time you understand what the economy is all about. Everything presented in the book is so factual, so unchallengeable, it is hard to know what to say other than "go read it" and then start preparing as best you can.

Well, I've had this book for a while, and last night I read the whole thing. It only took an hour and a half to read, because it's only 64 pages long, and printed in large type.

I tend to regard most of these kinds of books with a lot of skepticism. I find reading the customer comments section for such books very helpful. Often, people who have read the book already can give you a very good idea of whether or not the book is even worth bothering with. Some very sharp minds often tear these books to shreds, exposing their bias, bad research and inaccuracies, saving you the time and trouble. But this book got a higher approval rating than similar books; the comments were intriguing, and since it only cost $8.95, I decided to give it a try.

The comments on this book were varied and interesting, and even most of the author's critics didn't completely disagree with the his contention that there is a relationship between the DJIA and the most productive age demographic. The thing they most argued with were about some of the conclusions that Arnold formed based on this data.

I would also question some of those conclusions, for the same reasons others have mentioned in the comments. But the Demographic data is fascinating, and I've yet to see a really effective rebuttal to it.

It was easy to read and follow Arnold's explanation of the data, and his premise takes into account a lot of variables such as immigration, wars, etc. He also shows how there are a number of short term factors that can cause the DJIA to waver temporarily from the demographic, but it always returns to the demographic.

Fascinating stuff, but what it all means for our future financial planning isn't so clear, as the conclusions are open to interpretation, and influenced by short term variables that we can't predict. For instance, Arnold recommends putting your money in U.S. Federal bonds. But with the huge deficit spending we are experiencing now, how safe are those going to be?

He has some interesting ideas about real estate and some other options, but it's late in the game now. The book was written in 2002, and if he's right we may already be on the brink.

The author also has a website, at TheGreatBustAhead.com.


Related Links:

Global Banking Crisis? Leading to...?

An Economic 9/11? A Depression? Trends...

What would a U.S. currency collapse look like?
     

What would a U.S. currency collapse look like?

Since the '70's, our government has steadily been printing more money:


This graph in a recent post by Pat (Inflation and our "funny money" supply) is startling in it's implications. Neither Republicans nor Democrats have done anything to stop the devaluing of our currency since the 1970's. In fact, they all have been printing even more money and devaluing it even further. When will it stop? Will it stop? And if it doesn't stop? Where will it lead us?



I've been reading a book called "PATRIOTS: surviving the coming collapse. It's a novel, in which a severe economic meltdown in the USA takes place. It was the description of the understated "crunch", the economic collapse when the dollar fails, that really gave me the creeps. What would the collapse of the American dollar actually look like?

The story starts with the US having 19 trillion dollars of debt, with interest on the national debt consuming 96% of government revenue. Most of it is "off budget", like the debts for the Iraq war, but it's still national debt. There is still interest to pay on it.

Ok, at this point you might say, "19 TRILLION DOLLARS of debt? No way, it could never happen." I would hope it wouldn't. But if you told me 10 years ago that we would even be talking about trillions of dollars of debt today, I would have said "No way, our government would never be that irresponsible". Yet, here we are. And our government has been taking debt "off budget", and borrowing from Peter to pay Paul. If they think it's ok to run debt up another 1 trillion, or 3 trillion... once you say it's alright to go down that road, then where does it stop? How much is too much?

In the story, European bankers start to express doubt that the US government can make the interest payments on it's growing debt, with serious results: foreign central banks and international monetary authorities began to dump their trillions of dollars in U.S. Treasuries. Foreign investors begin liquidating their U.S. paper assets.

The value of the dollar plummets. Businesses fail. Unemployment goes to 20% and higher. Ultimately it leads to a stock market collapse, and domestic runs on U.S. banks begin. Like in the Great Depression of the 1930's long lines of people form at the banks, wanting to withdraw all of their money. But unlike the 1930's, this time there is the promise of FDIC, "All deposits insured to $100,000." But the only way to let everyone withdraw their money, is to print even more money. This leads to hyper-inflation; the more money the government prints, the less it's worth. Think of Zimbabwe as a recent example.

In the novel, the government can't stop the inflation unless they stop printing money, but they can't stop printing more, because people are demanding their FDIC protected cash. With the resulting hyper inflation, soon a can of beans costs $150.00.

Now this is, to me, where the story really gets scary. I figured that if a 1930's type "depression" happened, it would be bad, but we would all somehow muddle through it, just as we had in the 1930's. But there are some significant differences between then and now.

In the 1930's, the government hadn't over-borrowed and raked up trillions of dollars in debt. In the 1930's, roughly half of American families lived on farms. They may have been made poor by the Depression, but they still had means to grow their own food and scrape by.

Nowadays, the population of the United States is much larger. The majority of U.S. citizens live in cities. Only 2% of the population lives on farms anymore. The majority of Americans must buy their food at stores. Think what would happen if they could no longer do that?

The story goes on to describe a situation where American cities are gripped with rioting and looting. The National Guard and the Army Reserve are called up to quell the rioting, but many of them don't report in, because they are staying home to protect their families.

Inner city areas are burned to the ground, and no one can stop it. Factories near cities close down "temporarily", but never open again. The Freeways that run through the cities become impassable, due to the riots, and due to fuel shortages, with people running out of gas and leaving their cars on the roads.

Most of the goods and fuel shipments in the US are transported on 18 wheel diesel trucks that use the interstate highway system. They all pass through cities. The cities become impassable, so the shipments of goods and fuel stop.

Trains pick up some of the slack, but not enough, and even they are vulnerable; mobs soon learn they can rip up the tracks to derail the trains, and loot them.

Without fuel shipments to power plants, the electrical grid begins to shut down. The few remaining factories that are operating are shut down by this, as well as the oil refineries that make our fuel. Even the refineries can't produce enough of their own electricity to keep operating, because they, like everyone else, always assumed they could count on the national power grid.

As the power grid shuts down from lack of fuel, so do the telephones, the internet, radio and TV stations. We are plunged back into the dark ages, literally. Our civil institutions and the rule of law break down completely.

THAT never happened in the 1930's.

You'll have to read the book for the complete picture the author paints. Now I grant you, the author is a survivalist. His reason for writing the novel was to use it as a vehicle to teach many of the survivalist strategies and related knowledge he has compiled, in the context of a story where such knowledge would be applied. Therefore, he has painted the bleakest picture possible, as a canvass for that story (See review in link below).

One can argue that a real crash might not be so... severe? I'm sure there are lots of variables, but the story Rawles tells is very compelling none the less. If nothing else, you have to wonder, WHERE is all this endless deficit spending leading us? The disaster described above is completely avoidable, but will we? It often seems like everyone in government is either oblivious to or unwilling to deal with the dangers of huge deficits and inflated currency.

I know that with a personal or a family budget, if you start having "off budget" debts, your finances will be headed for trouble. Government budgets are no different. We must all live within our means. The consequences of ignoring that could be too horrible.

As for this book, I have to read it in parts, and then give it a break. It's intense. I'm not really of a survivalist mind-set. I like to be an optimist, balanced with a boy-scout "be prepared" attitude. The book is full of all sorts of useful tid-bits of information, such as "how long can you store gasoline before it's no longer useful in an automobile?" (about two years, unless you add chemicals to extend it's life). But the story... argh. I don't want to go there, not even mentally.

But even worse would be to go there actually, in reality. That's why I made this post about it. Let's NOT go there.

Lest this all sounds too depressing, the author says on his website that each of us has to decide for ourselves how bad things could get, and what preparations we want to make. Fair enough.

I hesitated to make this post at all, lest it sound too grim. I'd like to just forget about it, but then I keep seeing headlines like this one today:

New Bank Bailout Could Cost $2 Trillion

Our national debt is already more than 10 trillion dollars. Where is it going to stop? It just makes me want to ring the warning bell. Forewarned is forearmed.

We should not go down this road. But if the nation does anyway, we had best keep our wits about us, try to steer for "damage control", and make preparations along the way as we think might be wise for our circumstances. And never give up hoping, praying, and affirming the best outcome.


Related Links:

Patriots: a customer review on Amazon

An Economic 9/11? A Depression? Trends...

The Federal Deficit and the American Dollar


UPDATE 07-08-10:

Has the slow portion of the collapse already begun? A case is made for it:

Has US Currency already "collapsed"?

Has our nations current financial policies accelerated the collapse process? We may see as soon as next year:

What happens when Tax Cuts Expire in 2011?

Is there anything that can be done about it? I'm not sure, but I think the November elections this year will be our last chance to vote in politicians who can deal with the reality of our present situation:

Our true national debt: $130,000,000,000,000.

November is probably our last chance to stop the runaway gravy train, before it derails.