Investors all across the world are intently listening to the words of Messers Draghi and Bernanke is order to decipher the future of stock prices, bond prices and gold.
These two men are in charge of the printing presses that print the Euro and the U.S. Dollar. If they decide to print more currency stock prices, bond prices and gold prices will all go up.
Why? Because ultimately an increase in the money supply will produce higher prices for all real assets. The price of those stocks involved in reality, such as home builders, will rise the fastest.
Stocks, bonds and gold are all real assets.
However, if the ensuing inflation persists, bond prices will be the first to fall. The interest paid by the bonds will have to compensate for the loss in purchasing power of the bond. As the interest rate rises the bond price drops. Both of these events occur simultaneously.
Some stock prices will continue to rise with the subsequent inflation if the stock represents real assets, such as real estate, commodities and manufacturers of durable goods which are needed by the public.
Other stocks that bear the brunt of inflation through increased labor and material costs, such as airlines, will fall.
Gold will rise as the inflation rises.
The economies of the West, that is, Europe and the USA, will respond according to their competitiveness in the Global Market. This competitiveness depends, not on the money supply, but rather on the creativity and productivity of the entrepreneurs and their workers.
This creativity and productivity rests on the genetics and education of the populations involved. Government can play either a stimulatory role or a repressive role depending on who controls the government and what their specific goals are.
GENETICS AND EDUCATION CHANGING
As we look at Europe and the USA in the second decade of the 21st century we see a rapidly changing demographic scene in terms of the genetics, the culture, the religion, the education and the productivity of the citizens living in these two geographical areas.
Because the West went through a long period of prosperity in the latter half of the 20th century, its work force lost desire in increasing or even maintaining productivity. This was a result of the increased power of worker groups who demanded and received an ever greater share of the profits made by their employers.
This propensity of demanding an ever greater share of the profits of any group endeavor is an unfortunate part of the genetic endowment of most humans. The structure of the group endeavor becomes weaker as workers take on the roles of leaders. Leadership in a group endeavor requires specific skills and talents that the majority of workers lack. The workers simply want higher compensation and that generally comes at the cost of lower competitiveness.
When this happened in the last quarter of the 20th century the owners of most production facilities picked up their assets and moved to Asia where productivity was higher and worker cost lower.
These owners had established political structures which supported such movements, such as the World Trade Organization and other global paralegal entities to which all Western governments subscribed.
They had also brainwashed the Western populations with such propaganda phrases as “Free Trade” “Global Market Place” and “The World Economy.”
The Western workers were paralyzed mentally as their jobs were shipped to Asia. They actually applauded the loss of their jobs thinking that they were better off if they could buy Asian products at low prices. The fact that they would eventually have no employment never entered their minds.
In spite of the fact that production jobs left the West, another area of work in the West was inadequately supplied by the Western labor force.
This area was the labor intensive and low paying jobs of cleaning. The cleaning of hotel rooms, kitchens and other areas of human habitation were rejected outright by Western workers. These jobs were considered below their dignity as citizens of advanced countries.
Like the ancient Romans at the height of their power, Western workers demanded that “Slaves” do these menial jobs.
The wealthy owners of hotel chains, restaurant chains and other facilities that needed cheap hard working labor which would be willing to perform the work which Western workers rejected as too demeaning turned to the poorer countries of the world.
They turned to Latin America, Africa and Asia. Here they found millions of uneducated workers more than willing to do the menial jobs that the American and European workers had rejected.
Part of their motivation lay in the fact that they used no birth control and had large families with numerous children screaming for food and clothing. These people declared that they would do any type of work at low pay. All the wealthy owners of large hotel, food and food processing chains needed was permission from the governments involved to allow the potential migrants to enter their countries.
Such permission was not forthcoming so the owners simply brought in the migrants “illegally.” No wealthy owner ever paid a penalty for bringing in tens of millions of “illegal aliens” either in the USA or in the EU.
Once in their new countries many of the “illegal immigrants” turned to government resources for health care, housing and food.
These migrants enlarged the workforce of Europe and the USA by approximately eighty million workers, thereby increasing the unemployment rate in the West.
They forced out indigenous workers by accepting work at lower rates of pay. Employers turned to these workers when local workers refused the conditions of employment.
The “black market” in workers, where no insurance or benefits of any kind are paid for work performed, is now saturated with illegal immigrants.”
The most urgent problem facing Europe and the USA is unemployment. But, the unemployment predicament cannot be resolved when there is an excess of workers whose numbers grow daily.
HOW THE WESTERN GOVERNMENTS ARE SOLVING THE PROBLEM
If your shoes are too tight and you feel pain in your feet the cause lies in either big feet or small shoes or both. There is no solution unless you amputate your feet or buy bigger shoes.
In the case of the West where unemployment causes the pain of no food or no housing or no education, either the West removes a large part of its work force (amputation) or it buys its population the food, clothing, housing, health care and the other necessities of life usually found in “Modern Societies.”
This would be an easy solution if the West were rich and had the monetary resources to simply buy its way out of what is becoming to be seen as an obvious state of poverty.
But, the West, Europe and the USA, has devolved from economic areas of wealth, such as was seen in the period between 1960 and 1980 to areas of immense indebtedness in the beginning of the 21st century.
In order to forestall the reality of poverty in the West, its governments have used their privileged credit ratings, to borrow trillions of Dollars and Euros to feed, cloth and house their citizens.
The lenders have been the governments of Asia, who saw their money rapidly repaid in the form of purchases of their goods.
Essentially, the Asian countries kept their factories busy and their workers working, by lending the West trillions of Dollars and Euros which were immediately funneled back to the Asian Lenders by the Western Importers.
It was a grandiose charade which made the governments of the West and of Asia happy. In addition, the workers and factory owners in Asia were happy because they were working, and the workers of the West were also happy because they could buy goods at extremely low prices.
But all experience based on fantasy eventually has to end. Like dope addicts, both the Westerners and the Asians began to realize that their stroll in fantasy-land was ending.
Someone would have to pay the bill. Both the governments of Asia and of the West knew who would pay: It would be the savers of the world. Those people who had placed their earnings into paper objects, such as stocks and bonds and money market accounts.
They would pay. The plan was extremely simple: The Western Governments would repay their huge debts to the Asian Governments with debased currencies. The USA with its Federal Reserve and Europe with its ECB would print trillions of U.S. Dollars and Euros. The ensuing inflation would make all assets that were not real; such as precious metals and real estate, essentially worthless. People on fixed incomes and those with currency in their bank accounts would be made into paupers. Others, those who had land or precious metals, would become richer than they could have ever dreamt.
This is the only solution to the conundrum of the Debt Crisis. There will be many unhappy people, but they will ultimately survive and made much the wiser in the process.