November 15, 2013 – Nikolai Kondratiev’s Economic Winter: The devastating frost of economic winter is upon us. At least that’s what the followers of Nikolai Kondratiev’s long-wave theory say. Stock prices are in the final stage of the 50-60 year long wave.
The hallmarks of the winter season are a massive bear stock market, defaults and bankruptcies, bank crises, a credit crunch and a currency crisis as deflation runs its course through the economy. Gold rises too. It’s a full-blown depression, with a capital D.
There have been three Kondratiev winters in the U.S since its inception. The first is marked from 1837-45. The next was from 1873-96. The third was from 1929-49. And according to the K-wave faithful, the U.S. economy has been in the fourth winter stage since at least 2000. That was the year when stock’s secular bull market ended and the secular bear market started. By 2008, we had widespread defaults and bankruptcies… but thanks to Washington, not as many as we should have had.
Since 2000, the price of gold has risen substantially too. Despite, gold’s big drop in April, the yellow metal sits at $1,315 today. That’s still up over 500% from 2000. So far, so good… the K-wave theory is two for two. But what about the depression, deflation and currency crisis?
We wouldn’t describe the economy as great… but we wouldn’t call it depression bad, either. Not yet, anyway. What gives?
“This time around, the world’s central banks have a new set of tools,” explains John Rubino. “In past cycles, money was mostly gold and silver, which is to say it was real and in limited supply. Credit might have been flexible because of fractional reserve banking, but the money at the base of the financial system couldn’t be created out of thin air…
“The fact that trust [in fiat currency] dies only slowly (at first) has given the world’s governments an effectively unlimited credit card that they can max out to keep the debt implosion at bay. And that’s what they’ve done since 2000, with ever-lower interest rates and ever-more-creative asset purchase plans.”
So with the entire globe on a paper money standard and the printing presses running 24/7, are these darn K-waves even worth paying attention to? The short answer is yes. The more we think about it… the more the K-wave theory seems too rigid a way of looking at the world. What would make the world boom and bust every 60 years, after all?
At the same time, we’re not fortunetellers or oracles. We don’t think there’s merit in trying to bottle a better way of soothsaying. The economy isn’t something uniformed or mechanical. It’s difficult to figured out.
At the same time, we can’t resist the urge to take a crack at what the future holds, either. That’s why we’re in the business of forecasting. We can try our best to describe the trends around us and look for helpful insights wherever we might find them. Then we draw conclusions the best we can, knowing full well that if history shows that something will go wrong, it’ll be people’s predictions.
The danger with K-waves, as with any system like it, is thinking it holds all of the answers. The problem is that it dovetails with other cycle theorists such as H. J. Gouchon, Barbault and Ganeau. These graphs have consistently shown that starting in the year 2014; the world descends into chaos, anarchy, depression and war. (Credits – the Longwave Group, Peter Coyne, Gouchon, Barbault and Ganeau).
The Master of Disaster