Tuesday, May 27, 2014

Does The Economy Move In Predictable Waves, Cycles Or Patterns? If So We Are In Trouble

Does The Economy Move In Predictable Waves, Cycles Or Patterns? If So We Are In Trouble

May 26, 2014 | Tom Olago
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Does the economy move in predictable waves, cycles or patterns? According to many economic cycle theorists, it does – and the forecasts all predict economic doom and gloom in the United States over the rest of this decade.

Between 2015 and 2020, many economic cycle trend readings project that the U.S. economy is about to enter a major downturn.

Michael Snyder, in a recent report for the economic collapse blog explains some of the economic cycle theories painting this dire picture. These are summarized as follows:

1. One of the most prominent economic cycle theories is known as "the Kondratieff wave". Snyder explains that it was developed by a Russian economist named Nikolai Kondratiev, described by Wikipedia as having been executed by the Russian government in 1938 because of his economic theories.

In 1939, Joseph Schumpeter suggested naming the cycles "Kondratieff waves" in his honor. The long term business cycles that he identified through meticulous research are now called "Kondratieff" cycles or "K" waves. The K wave is a 60 year cycle (+/- a year or so) with internal phases that are sometimes characterized as seasons: spring, summer, autumn and winter:

- Spring phase: a new factor of production, good economic times, rising inflation;

- Summer: hubristic 'peak' war followed by societal doubts and double digit inflation;

- Autumn: the financial fix of inflation leads to a credit boom which creates a false plateau of prosperity that ends in a speculative bubble;

- Winter: excess capacity worked off by massive debt repudiation, commodity deflation & economic depression. A 'trough' war breaks psychology of doom.

Snyder explains that according to work done by Professor W. Thompson of Indiana University, we are heading into an economic depression that should last until about the year 2020. Based on Professor Thompson's analysis, long K cycles have nearly a thousand years of supporting evidence. If we accept the fact that most winters in K cycles last 20 years, this would indicate that we are about halfway through the Kondratieff winter that commenced in the year 2000.

Thus in all probability we will be moving from a "recession" to a "depression" phase in the cycle, predicted to start about the year 2013 and lasting until approximately 2017-2020.

2. The economic cycle theories of author Harry Dent also predict that we are on the verge of massive economic problems. He mainly focuses on demographics, stating that young people cause inflation because they "cost everything and produce nothing", but eventually "begin to pay off when they enter the workforce and become productive new workers (supply) and higher-spending consumers (demand)."

Dent’s findings as summarized by Business Insider are as follows:

- The U.S. reached its demographic "peak spending" from 2003-2007 and is headed for the "demographic cliff." European nations Germany, England, Switzerland are all expected to suffer the same fate, with China being the first of emerging market nations “to fall off the cliff”.

- U.S. stock market will crash. "Our best long-term and intermediate cycles suggest another slowdown and stock crash accelerating between very early 2014 and early 2015, and possibly lasting well into 2015 or even 2016. The worst economic trends due to demographics will hit between 2014 and 2019. The U.S. economy is likely to suffer a minor or major crash by early 2015 and another between late 2017 and late 2019 or early 2020 at the latest…”

- The U.S. and Europe are headed in the same direction as Japan, a country “still in a coma economy precisely because it never let its debt bubble deleverage. The only way we will not follow in Japan's footsteps is if the Federal Reserve stops printing new money."

- Fewer spenders, borrowers, and investors will be around to participate in the next boom…it all comes down to an aging population.

- The big four challenges in the years ahead will be 1) private and public debt 2) health care and retirement entitlements 3) authoritarian governance around the globe and 4) environmental pollution that threatens the global economy.

According to Dent, "You need to prepare for that crisis, which will occur between 2014 and 2023, with the worst likely starting in 2014 and continuing off and on into late 2019."

3. Another economic cycle theory that people are paying more attention to these days is the relationship between sun spot cycles and the stock market.

It turns out that market peaks often line up very closely with peaks in sun spot activity. Based on this theory, first popularized by an English economist William Stanley Jevons, sun spot activity appears to have peaked in early 2014 and is projected to decline for the rest of the decade. If historical trends hold up, that is a very troubling sign for the stock market.

Several other economic cycle theories that seem to indicate that trouble is ahead for the United States as well. Snyder provides a summary from an article by GE Christenson and Taki Tsaklanos, with the relevant source and cycle names provided:

4. According to Charles Nenner’s research, stocks should peak in mid-2013 and fall until about 2020. Similarly, bonds should peak in the summer of 2013 and fall thereafter for 20 years. He bases his conclusions entirely on cycle research. He expects the Dow to fall to around 5,000 by 2018 – 2020.

5. Clif Droke describes Kress Cycles thus: The major 120 year cycle plus all minor cycles trend down into late 2014. The stock market should decline hard into late 2014.

6. Robert Prechter believes that in the Elliott Wave, the stock market has peaked and has entered a generational bear-market. He anticipates a crash low in the market around 2016 – 2017.

7. David Nichols, in the online publication Market Energy Waves, sees a 36 year cycle in stock markets that is peaking in mid-2013 and will cycle down for 2013 – 2016. “… The controlling energy wave is scheduled to flip back to negative on July 19 of this year.” Equity markets should drop 25 – 50%.

8. According to Armstrong Economics, the economic confidence model projected a peak in confidence in August 2013, a bottom in September 2014, and another peak in October 2015. The decline into January 2020 should be severe. He expects a world-wide crash and contraction in economies from 2015 – 2020.

9. Charles Hugh Smith discusses four long-term cycles that bottom in the 2010 – 2020 period. They are: Credit expansion/contraction cycle, Price inflation/wage cycle, Generational cycle, and Peak oil extraction cycle.

Snyder notes that it is disconcerting to a lot of people that 2014 is turning out to be eerily similar to 2007, and that America seems to be repeating mistakes instead of implementing lessons learned.

He further points to indications that the next major economic downturn is just around the corner, such as news that manufacturing job openings have declined for four months in a row. Snyder concludes: “Let's hope that all of the economic cycle theories discussed above are wrong this time, but we would be quite foolish to ignore their warnings.

Everything indicates that a great economic storm is rapidly approaching, and we should use this time of relative calm to get prepared while we still can”.

It is also noteworthy that these predictions are also being currently corroborated by other observers.

Business Cycle.com on the 9th of May published a Business Insider interview with Lakshman Achuthan,the co-founder of the Economic Cycle Research Institute. When asked by Business Insider what he thought was the “most worrisome sign in the economy”, Lakshman in part replied:

“In fact, demographics, along with productivity growth averaging less than 1% for the last three years, have helped keep U.S. trend growth so low that the inevitable growth slowdowns are more likely to end in recession. This is the hallmark of the “yo-yo years,” characterized by more frequent recessions than most expect. There’s no indication that this era will end soon, even if we see occasional 3%-plus GDP growth quarters, given that even Japan in its “lost decades” has seen 3%-plus GDP growth in 30% of the quarters since 1990.”

The context around Lakshman’s recent comments such as “demographics”, “low productivity growth… likely to end in recession”, “no indication that this era will end soon” – are all consistent with the cycles- based conclusions arrived at by Nikolai Kondratiev’s Kondratieff wave theory and Harry Dent’s dire economic predictions, not to mention the many other similar independently established findings.

It will certainly help America to heed the warnings and implement lessons learnt from economic history and forecasts before it becomes too late, or to at least limit the impact of what would be “pure hell for the United States” in these years leading up to 2020.

Read more at http://www.prophecynewswatch.com/2014/May26/263.html#E0i9ilWzkZFAtQtC.99

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