Friday, 18 November 2011

The Moses Principle

Business Mirror

ALLOW me to quote from the keynote address at the Sydney Gold Symposium a few days ago. The speaker is one of the most successful and astute financial advisers and technical analysts in the last 50 years. His name is Alf Fields.
Mr. Fields said this: “The Moses Principle is an irreverent theory based on the question of why Moses spent 40 years traversing the barren desert before leading the Israelites to the ‘promised land.’ Here is the irreverent theory. Every Israelite over middle age when they left Egypt probably died during the ensuing 40 years. The younger people were born in the desert or spent their adult lives in the desert. After 40 years the life experience of the survivors consisted of living in the desert.

A total generational change had taken place so that the survivors had no knowledge of anything other than the desert. There was nobody who could remember what Egypt was like. The Moses Principle recognizes the fact that over any 40-year period, a generational change takes place.

Recently we passed the 40th anniversary of August 15, 1971, the date when the last link between currencies and gold was ended by President Nixon. This launched an era of floating ‘I owe you nothing’ currencies. Money was what any government deemed it to be, generally something that the government could create in unlimited quantities.”

You may read the entire speech at this link: I strongly encourage you to do so.

The importance of August 15, 1971, cannot be over-emphasized. The numbers prove the disastrous effects of fiat or government-created money.

In the US during the 20-year period between 1951 and 1971, the total inflation rate was 56 percent. From 1971 to 1991 that rate jumped to 235 percent. The inflation from 1991 to 2010 was 66 percent.

You might point out that inflation has slowed in the last 20 years. However, the inflation of the 1971-1991 period helped destroy the economic growth of 1991-2010.

The real annual GDP growth-rate from 1951 to 1971 was 3.63 percent. From 1971 to 1991 that rate dropped to 3.03 percent. And from 1991 to 2010 the growth rate fell to 2.61 percent.

Despite technological advances that increased productivity, thousands of inventions and new products, and overall increases in the quality of life and population, the US economy grew at one third the speed in the 1990s as in the ’50s and ’60s.

After 40 years in the desert, the Israelites were stronger and wiser, better able to take and make the promise land more productive.

After 40 years of credit and intrinsically valueless currency, the West is weak and nearly helpless.

Since 1971, the West, particularly the US, has built economies on credit and not with hard work. Why work and save for a car, house, and life’s wonderful luxuries when you can just borrow the money.

This is where The Moses Principle of generational change comes in.

People born in 1971 and soon after understand how to take on debt but do not understand the consequences and it has shaped the last 40 years. A 20-year-old American in 1991 would never think of getting a job in a factory and make something. It was much easy to take college degrees in sociology and literature rather than in engineering and accounting.

America paid the Chinese to make their clothes and the Japanese to build better cars and borrowed the money to do that. Americans concentrated on things like “social” issues and the environment and did not concentrate on building their economy. Working in a factory even as an industrial engineer was beneath them.

Even now, computer programmers in India write the software that Americans invent. The Chinese manufacture the products that Steve Jobs created and it takes Filipino call-center employees to explain to the Americans how to use them. There are hundreds of thousands of jobs in the US for which workers cannot be found. These include electrical engineers, nurses, in mathematics and computer science, pharmaceutical sciences and administration, accounting and financial analysis.

From 1971 to 2009, the number of college graduates in engineering increased 150 percent. The number of students given degrees in psychology increased 250 percent. Those studying public administration and social services went up by 430 percent. Graduates in “parks, recreation, leisure, and fitness studies” increased 1950 percent. Mathematics and statistics graduates increased 62 percent.

The Israelites who walked out of the desert after 40 years were different from their relatives who walked in. They were a better generation because of their generational experiences.

The generation that has matured in the last 40 years is not better in part by what was started by governments in 1971.

E-mail to and Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by Inc.

No comments:

Post a Comment