Is this President Bush's economic boom? (page 3 of 3)

I may add that I feel that the dollar has about the same downside risk against the Asian currencies as it had in 1971 against the European currencies, against which it then declined by 70% in the course of the 1970s and led to its early 1980 under-valuation.

Needless to say that additional dollar weakness would add to inflationary pressures and intensify the trend toward higher interest rates.

The last fundamental difference between the early 1980s and today concerns not only the stock market and housing market in the US, but also most stock and property markets around the world. In 1982, the Dow Jones Industrial Average was no higher than it had been in 1954, and adjusted for inflation it was down by 70%.

How inexpensive equities were relative to the overall price level and especially against commodities is evident from the gold to Dow Jones Ratio. In 1980, with one ounce of gold you could have bought one Dow Jones Industrial Average. Today, however, it takes about 25 ounces of gold to buy one Dow Jones Industrial Average, suggesting that US equities are not particularly cheap (or very expensive, as I believe, compared to gold).

Moreover, in 1982, stocks sold below their book value and had a dividend yield of 7%! Compare that with today! Equally property markets around the world were depressed in the early 1980s, due to sky-high interest rates. Today, property markets, especially in the Anglo-Saxon countries all exhibit symptoms of bubbles.

Finally, in the early 1980s, consumers had a pent-up demand for goods and services following the 1980/81 and 1982 recession. Their saving rate was above 9%, whereas today, we have no pent-up demand whatsoever, and there are on the household level practically no savings.

So, whereas in 1982, the then existing pent up demand led to a strong consumption led recovery, today, the over-leveraged consumer may actually, as some recent economic indicators seem to indicate lead - if not to a consumption slump - then at least to a slowdown in the growth of consumer expenditures.

In sum, we can see that today's economic conditions are widely different than what we had in the early 1980s. In particular, today's debt load, the vulnerable position of the US dollar against the Asian currencies, the long-term price cycle in terms of commodities and interest rates likely to have bottomed out and having embarked on a rising trend, the consumer's debt load, and stock valuations are such that a sustainable healthy recovery is unlikely to shape our future.

In fact, I would argue that conditions are now so blatantly different that a "Bush Economic Boom" is almost certainly to end up in a "Bush Economic Slump " perfectly matching the "Bush Military Calamity".