Advanced Stock Markets Are Now Totally Drug Addict

Amid debates on whether recent weeks’ sell off in advanced economies stock markets was a correction or start of a new collapse, picture of world’s top bourses Tuesday clearly indicated that these developed markets now turned totally addicted to stimulus money, just like a drug addict desperately needs heroin.

Banks and shares in peripheral countries led a European rally on Tuesday after media reports claiming that the European Central Bank (ECB) is considering buying corporate bonds to revive the region's economy.

The purchases, which the news reports said could be approved in December and start early next year, are seen as helping banks, especially in struggling southern European countries, free up more of their balance sheet for lending.

The Euro STOXX banking index rose 3.3%, with the biggest gains seen in Greek, Italian and French banks.

Tuesday, European investors were as happy as a drug addict who finally found his heroine. The ECB signaled that it would give the desperately needed easy stimulus money or heroine of the struggling European economy. Before this month dominant consideration was Germany’s manufacturing economy was strong but peripheral countries were weak. However, latest set of economic data indicated that Germany was also slowing down and Europe was on the brink of a new recession or even deflation. So the ultimate remedy is to apply to the lender of last resort or the ECB and make it print paper money out of thin air again!

Elsewhere, Japanese stocks fell Tuesday, with the market latching on to comments from the welfare minister on the country's public pension fund. Over the weekend, media reported that the $1.2 trillion GPIF would likely raise its allocation for domestic stocks to about 25%, a bit more than market expectations of around 20%.

Minister Yasuhisa Shizoaki, responsible for the GPIF, said on Tuesday that he did not know anything about media reports, disappointing investors who had hoped he might confirm such reports.

Let’s summarize situation in Europe and Japan: One drug addict finds hope for new shot of heroin on the other hand another one is disappointed that he will not get the amount of shot as much as he expected.

'Money for Injections' from www.tOrange.us 

This work is licensed under a Creative Commons Attribution 4.0 International License.

Finally, the US stocks rallied on Tuesday, with the S&P 500 on track for a fourth straight session of gains. Media says that American markets were boosted by strong corporate results. If you really believe that the US stock market is not moving according to the more than $3 trillion heroin injection or ‘golden shot’ since 2008 but economic realizations; that means you also need a drug. Here is your drug from Mike Maloney: A video clearly indicating that the US stocks move completely parallel to easy stimulus money: https://www.youtube.com/watch?v=T5JcmpN2mrA&feature=youtu.be&a

Due structural problems like inefficient and excessive source utilization, aging populations, centralization, bureaucratization, nuclear family breaking up, alienation, depression and etc. advanced or matured, old money-industry economies are no longer able to maintain their manufacturing industries in a productive way.

Advanced or developed economies are money based or capitalist economies which organize production with money. Real rulers of these economies are people who control the main production organizer or money or big capital. As the system reached its natural limits rulers corrupted money and invented fiat paper currencies which are not backed by any tangible assets like gold to keep the economies going and more importantly to maintain their ruling positions. 

You can take natural substances and make drugs from them and have joyful time with this and forget your real problems. Rulers of money economies took natural money or gold and corrupted it and produced fiat currencies, a kind of drug for economies. They covered real issues and gave unsustainable entertainment to people. However, now both rulers and public became addicted to this drug. Everybody knows what will be the end of a person who denies his/her real problems and try to live life with drugs!

American Labor Productivity More Than Halved Since 1990!

When you read the headline you might have thought “What the hell is this guy saying? Labor productivity is very strong in the US.” This way of thinking is right if you depend on conventional methods of economic data gathering and processing. However, if you change your perspective you will see a brand new and surprising world.

Today, under traditional methods labor productivity is measured by dividing a special Gross Domestic Product (GDP) to the total hours worked of all persons, in a year. So, here is the conventional formula:

Labor Productivity = Special GDP*/Labor Hours

*(Excludes the following: General government, the output of the employees of non-profit institutions and private households, and the rental value of owner-occupied real estate)

First of all, this special GDP, or annual production of a country, does not include state economy. State economy is the centre of bureaucratization and inefficient source usage in the advanced industrialized money economies. Currently, in each developed country, state controls nearly half of the economy.

By Stefan Kühn on de.wikipedia, via Wikimedia Commons

Additionally if you measure labor productivity with paper money you will not see the impact of inflation on it easily.

For example, when you measure the American labor productivity with the US dollar, as it is done today, you will notice that it is continuously increasing. Like it is clearly seen in the table below:

CLICK THE TABLE TO ENLARGE

The US Labor Productivity Measured by the US Dollar = 1971: 47.86 dollars, 1980: 55.18 dollars, 1990: 64.54 dollars, 2000: 81.17 dollars, 2014 (2Q): 105.97 dollars

According to this calculation if someone work for an hour in the US in 1971 he/she would earn 47.86 dollars. By the end of 2^nd Quarter of 2014, this figure jumps by 121.4% to 105.97 dollars. Since 1990, labor productivity rose by a significant 64.19%, in US dollar terms.

Now let’s see what happens if we radically change our perspective. How can the picture change, if we measure the US labor productivity with a real good for instance, gold? Here is a detailed table on this issue:

Period	Labor Prod in $	Gold Price per Oz in $	Gold Price per Gr in $	Labor Prod  in Gold
1960	34.60	35	1.1253	30.75
1971	47.86	35	1.1253	42.53
1980	55.18	593.75	19.0895	2.89
1990	64.54	376.3	12.0983	5.33
2000	81.17	275.05	8.843	9.18
2008	96.83	845	27.1673	3.56
2013	106.57	1202.3	38.6548	2.76
2014 2Q	105.97	1321.8	42.4968	2.49
Chg (1990-2014)	+64.19%			-53.28%

Sources: US Bureau of Labor Statistics, tradingeconomics.com, goldprice.org

In this table, we see that US labor productivity in terms of gold first crashed during 70s, than modestly recovered in 80s and 90s, but dived again during 2000s and continued falling after 2008 Crisis, despite more than 3 trillion dollars money printing. There is no continuous rise! Contrary, labor productivity collapsed during 2000s. According to the latest data it is almost halved, compared to 1990!

In other words, in 1971, by working an hour, an American worker could earn 47.86 dollars and buy 42.53 grams of gold with this money. However, by the end of second quarter of 2014, despite earning 105.97 dollars he/she can only buy 2.49 grams of gold with it! Until 1971 there was a state monopoly on gold market and gold price was artificially fixed at 35 dollars. So crash of labor productivity in 1970s was stemming from normalization of gold prices. But even we exclude this fact we see that by the end of 1990 an American worker could buy 5.33 grams of gold with his/her one hour work. However this amount fell by 53.28% to 2.49 grams by the end of second quarter of 2014. In other words, the US labor productivity lost more than half of its real value since 1990.  

So what is the meaning of this for the world economy? If the FED is expecting to gear up the US economy with a slightly rising employment, trusting that American labor productivity is so strong and even a small amount of job creation would lead to enough GDP growth, this will not happen! Real US labor productivity is going nowhere, it is collapsing. The FED needs GDP growth to lower currently unsustainable rate of public debt to GDP and pay US state debt. Otherwise it needs to create inflation and decrease the real value of public debt. This option is only possible by opening a new money printing or QE package rather than ending the current QE or hiking interest rates, as generally expected today.

There is no doubt that labor productivity situation is same in the other developed regions like Europe, Japan or Russia. So why is the labor productivity collapsing in old, matured or advanced industrial money economies.

Because these economies reached natural limits of an industrialized money economy. Aging population, bureaucratization, crumbling nuclear family, alienation, depression, excessive inefficient source utilization, rising debts and etc. spoil and lower labor productivity. Decreasing labor productivity and structural deflation are important characteristics of today’s dying advanced industrial economies.

Matured or developed money based industrial economies seem to end up with a financial crisis bigger than 2008. This worldwide shake-up would not kill money based or capitalist way of production completely but it will open gates for a new production mode, which is not based on money but information.

  

Why Gold Prices Fall Despite European Money Printing?

Last week, the European Central Bank (ECB) surprisingly lowered all its interest rates and announced that it will print money. Following the news the US dollar started to appreciate against euro and all other currencies and commodities including gold.

Gold it is an alternative for paper and fiat currencies. So, if the ECB will provide more euros and expand the paper money supply gold must have gained value. However, it significantly lost value falling from around 1300 dollars to 1250 dollars levels.

"Euro coins and banknotes" by Avij (talk · contribs) - Own work. Licensed under Public domain via Wikimedia Commons

Attributing this fall in gold prices to easing geopolitical concerns is nonsense. I do not think that markets ever really priced a war between the NATO and Russia. If it was the case gold would have skyrocketed to 10 thousand dollars if we consider possible destruction that could be created with such a war. If the war was never priced so a ceasefire in Ukraine has no real impact on gold prices.

The fall of gold prices against expectations for abundance of euros indicates and underlines a special feature of the yellow metal. The gold is not only an alternative for paper and fiat currencies; more importantly it is an alternative for the global reserve currency.

A reserve currency is the kind of money that is held in significant quantities by governments and institutions as part of their foreign exchange reserves for using in international transactions. With the reserve currency you can purchase imports and borrow in international markets more cheaply than people who do not use a reserve currency because you would not need to exchange the reserve currency to do so.

"Gold Bars" by Agnico-Eagle - Agnico-Eagle Mines Limited. Licensed under Creative Commons Zero, Public Domain Dedication via Wikimedia Commons

Today the world is generally using the US dollar as the global reserve currency. The other alternative reserve monies are euro and gold. Recently, sanctions against Iran showed the world that gold is a very effective reserve currency in emergency situations. When the sanctions blocked Iran’s access to international monetary markets and prevented its exports and imports; Tehran started to use gold for international trade.

So when euro depreciates it pushes the dollar up and as the dollar is the primary reserve currency of the world this upwards move of the greenback presses down gold and also euro further; as the alternative reserve currencies.

In the coming months we can expect the developing countries’ central banks to continue buying gold from cheap prices as they are trying to increase their gold holdings against possible ugly consequences of huge money printing experiments of the developed world. We can also expect that the US will take new measures to depreciate dollar, because strong dollar will hurt American exports and undermine an already fragile and debated economic recovery. Most importantly the US needs a weak national currency in order to create inflation and melt the giant national debt mountain. The problem is all the other developed money-based industrialized nations, especially Europeans and Japanese, need the same thing.