Wednesday, May 14, 2014

Christopher Quigley — Kondratieff Waves and the Greater Depression of 2013 - 2020

Nikolai Kondratiev based his sixty years cycle on thinking similar to Minsky's financial instability theory.
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.
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 (as outlined in the chart above) 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 about the year 2013 and it should last until approximately 2017-2020.
Should this analysis prove true, there is a second leg down to come, which has been my feeling for some time independent of it. The financial basis is not there for a strong recovery, and there the problems that led to the crisis have not been addressed effectively. Moreover, the global situation is precarious rather than optimistic.

Financial Sense
Kondratieff Waves and the Greater Depression of 2013 - 2020
Christopher Quigley

1 comment:

theyenguy said...

The world entered Kondratieff Winter, the final phase of the Business Cycle, on May 20, 2014,
as Aggregate Credit, Italy And European Financials turned lower from their market tops on the exhaustion of the world central banks’ monetary authority.

The apostle Paul presents the concept in Ephesians 1:10, that Jesus Christ has been tasked with the economy of God, to mature and perfect all things in every age, bringing them to maturity and perfection, much like a ship’s captain completes the manifest before setting sail.

The age of currencies, was fathered by Milton Friedman with his Free To Choose Manifesto, and the age of credit was fathered by Ben Bernanke with his QEs, Mario Draghi with his LTRO1, 2, and OMT, and Hiroki Kuroda, with this Abenomics.

God purposed for a debt based money system, and provided the Banker regime to establish currencies and credit to achieve His purposes. It was by God’s design from eternity past, and ongoing fulfillment of His will that the central bank leaders’ provision of currencies and credit, provided seigniorage, that is moneyness, for investment gain, and very little stimulus for economic recovery since the Great Recession, as the investor was ordained from eternity past to be the centerpiece of economic activity.

Thus there was was no fluke, error, or failure of policy, whereby employment and household debt relief were given little regard despite the complaint of Tyler Durden US Manufacturing PMI Beats But Employment Slows To Worst In 2014; and of Brad DeLong Post-1980 Rise Of Extreme Inequality In America and of House of Debt authors Atif Mian and Amir Sufi Employment Scars of the Housing Bust. The central argument we make in our book is that the housing bust in combination with excessive household debt burdens were the key drivers of the economic downturn. Failure to more adequately address the housing disaster was the greatest policy mistake made in the Great Recession.

Each of economic geniuses, Bernanke, Draghi, and Kuroda, provided his own credit stimulus for trust in risk on investing; these birthed and defined the investor as the centerpiece of economic activity.

The sovereign’s monetary policies defined investment choice and established both the confidence and the platform for risk-on investing, and resulted in peak banking equity wealth, IXG, on May 13, 2014, and resulted in peak credit wealth, AGG, on May 15, 2014, thus establishing peak moral hazard.

Sovereign monies, that is Major World Currencies, DBV, such as the Euro, FXE, are now trading lower. This loss of seigniorage communicates a dwindling of sovereign authority.

Wealth destruction commence on Tuesday, May 13, 2014, in the Eurozone on the failure of credit, specifically the failure of trust in the world central banks to continue to stimulate investment gains as well as global growth. With the trade lower in Italy’s Sovereign Debt, ITLY, and Italy, EWI, and the European Financials, EUFN, the world has passed through an inflection point: the world has pivoted from the age of credit into the age of debt servitude.

On Tuesday, May 20, 2014, the world entered Kondratieff Winter, the final phase of the Business Cycle, with a credit market reversal and a partial equity market reversal, as investor’s greed turned somewhat to fear, specifically fear that the world central banks’ monetary policies, no longer sustain investment gains and global economic growth, and have made money good investments bad.

The see saw destruction of fiat investments commented Tuesday May 20, 2014. While World Stocks, VT, and Nation Investment, EFA, may trade higher, Global Financials, IXG, and Dividends Excluding Financials, DTN, as well as Credit Investments, AGG, are trading lower, as the bond vigilantes have control of the Benchmark Interest Rate, ^TNX, which traded lower to 2.51%, but remains above support at 2.49%.