Inflation Versus Stock Market

S & P 500 versus Federal Debt

It's been my contention that the rate of inflation reflects the amount of debt the US Federal Government is carrying. Recently it occurred to me that the continuing rise in the stock market is tied to the rate of inflation and so also to the federal debt. The stock market in general represents things of real value, which generally means useful things, things which can be used to produce other stuff, stuff that people are willing to pay for. Money is ephemeral, it is only useful if it can be used to purchase useful stuff. When money becomes worth less, it takes more to buy stuff.

The great rise in the stock market (as represented by Standard & Poor's 500 in the above chart) is not because American industry is becoming more productive, or more profitable, it is simply the reaction of people to the inflation caused by the federal government's borrowing. Housing prices are doing the same thing, for the same reason.

If you can't afford to buy a house and you don't trust the stock market, gold in the form of one ounce coins is not a bad place to put your savings. However, beware, gold's value is also subject to irrational price swings, so don't put all your eggs in one basket.