by Michael Snyder
May 12, 2014
Does the economy move in predictable waves,
cycles or patterns?
There are many economists that believe that it
does, and if their projections are correct, the rest of this decade is going
to be pure hell for the United States.
Many mainstream economists want nothing to do
with economic cycle theorists, but it should be noted that economic cycle
theories have enabled some analysts to correctly predict the timing of
recessions, stock market peaks and stock market crashes over the past couple
Of course none of the theories discussed below
is perfect, but it is very interesting to note that all of them seem to
indicate that the U.S. economy is about to enter a major downturn. So will
the period of 2015 to 2020 turn out to be pure hell for the United States?
We will just have to wait and see.
One of the most prominent economic cycle
theories is known as "the Kondratieff wave".
It was developed by a Russian economist named
Nikolai Kondratiev, and as Wikipedia
has noted, his economic theories got him into so much trouble with the
Russian government that he was eventually executed because of them...
The Soviet economist Nikolai Kondratiev
(also written Kondratieff) was the first to bring these observations to
international attention in his book The Major Economic Cycles (1925)
alongside other works written in the same decade.
Two Dutch economists, Jacob van Gelderen and
Samuel de Wolff, had previously argued for the existence of 50 to 60
year cycles in 1913. However, the work of de Wolff and van Gelderen has
only recently been translated from Dutch to reach a wider audience.
Kondratiev's ideas were not supported by the
Soviet government. Subsequently he was sent to the gulag and was
executed in 1938.
In 1939, Joseph Schumpeter suggested naming
the cycles "Kondratieff waves" in his honor.
In recent years, there has been a resurgence of
interest in the Kondratieff wave.
The following is an excerpt
from an article by Christopher Quigley
that discussed how this theory works...
Kondratiev's analysis described how
international capitalism had gone through many such "great depressions"
and as such were a normal part of the international mercantile credit
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:
phase: a new factor of production, good
economic times, rising inflation
hubristic 'peak' war followed by societal doubts and double
the financial fix of inflation leads to a credit boom which
creates a false plateau of prosperity that ends in a speculative
excess capacity worked off by massive debt repudiation,
commodity deflation & economic depression. A 'trough' war breaks
psychology of doom.
Increasingly economic academia has come to
realize the brilliant insight of Nikolai Kondratiev and accordingly
there have been many reports, articles, theses and books written on the
subject of this "cyclical" phenomenon.
An influential essay, written by Professor
W. Thompson of Indiana University, has indicated that K waves have
influenced world technological development since the 900's.
His thesis states that "modern" economic
development commenced in 930AD in the Sung province of China and he
propounds that since this date there have been 18 K waves lasting on
average 60 years.
So what does the Kondratieff wave theory suggest
is coming next for us?
Well, 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 (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.
But of course the Kondratieff wave is far from
the only economic cycle theory that indicates that we are heading for an
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, and the fact that our
population is rapidly getting older is a major issue for him.
The following is an excerpt from a
Business Insider article that summarizes the major points that Dent
makes in his new book...
Young people cause inflation because
they "cost everything and produce nothing." But young people
eventually "begin to pay off when they enter the workforce and
become productive new workers (supply) and higher-spending consumers
Unfortunately, the U.S. reached its
demographic "peak spending" from 2003-2007 and is headed for the
"demographic cliff." Germany, England, Switzerland are all headed
there too. Then China will be the first emerging market to fall off
the cliff, albeit in a few decades. The world is
The 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
"The everyday consumer never came out of
the last recession." The rich are the ones feeling great and
spending money, as asset prices (not wages) are aided by monetary
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," Dent
argues. "The only way we will not follow in Japan's footsteps is if
the Federal Reserve stops printing new money."
"The reality is stark, when dyers start
to outweigh buyers, the market changes." It all comes down to an
aging population, Dent writes. "Fewer spenders, borrowers, and
investors will be around to participate in the next boom."
The U.S. has a crazy amount of debt and
"economists and politicians have acted like we can just wave a magic
wand of endless monetary injections and bailouts and get over what
they see as a short-term crisis." But the problem, Dent says, is
long-term and structural — demographics.
Businesses can "dominate the years to
come" by focusing on cash and cash flow, being "lean and mean,"
deferring major capital expenditures, selling nonstrategic real
estate, and firing weak employees now.
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."
So just like the Kondratieff wave, Dent's work
indicates that we are going to experience a major economic crisis by the end
of this decade.
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.
This is a theory that was first popularized by
an English economist named
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
And of course there are many, many other
economic cycle theories that seem to indicate that trouble is ahead for the
United States as well.
The following is a summary of some of them
from an article by GE Christenson
and Taki Tsaklanos...
Charles Nenner 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.
Kress Cycles (Clif Droke)
The major 120 year cycle plus all minor cycles trend down into late
2014. The stock market should decline hard into late 2014.
Elliott Wave (Robert
He believes that the stock market has peaked and has entered a
generational bear-market. He anticipates a crash low in the market
around 2016 – 2017.
Market Energy Waves
He 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%.
His economic confidence model projects 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
Cycles per Charles Hugh
He 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
So does history repeat itself?
Well, it should be disconcerting to a lot of
people that 2014 is turning out to be
eerily similar to 2007. But we never learned the lessons that we should
have learned from the last major economic crisis, and most Americans are way
too apathetic to notice that we are making many of the very same mistakes
all over again.
And in recent months there have been a whole
host of indications that the next major economic downturn is just around the
For example, just this week we learned that
manufacturing job openings have declined
for four months in a row. For many more indicators like this, please
see my previous article entitled "17
Facts To Show To Anyone That Believes That The U.S. Economy Is Just Fine".
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.