Boom-And-Bust Of The State
History has shown that the stock market and the four-year Presidential election cycle follow strong predictable patterns. What can we expect going forward?
The year 2011 was one of uncertainty, with many investors staying in cash rather than risk investing in the stock market. With its financial problems, Greece was on everyone’s mind, and the market felt the burden. Italy, suffering from its own woes, stood in the wings waiting to take the stage once Greece took its bow. Then of course, even nature joined in the market’s negative game. On March 11, 2011, a massive earthquake and tsunami in Japan rocked the stock markets of the world. Could Nikolai Kondratieff, the Russian economist (1892–1938) who developed the famous wave theory, have foreseen all of that?
The Kondratieff wave
When Kondratieff developed his theory, he theorized that economic forces repeated themselves in a pattern of a 54- to 55-year boom-and-bust cycle. He described the collapse of a boom as characterized by the “renunciation of debt.” Isn’t that what happened to the banks throughout the world, and isn’t that what is happening to selective countries that did not take a stronger action with their monetary policy in the eurozone today?
In “My Kondratieff Wave,” my S&C November 2008 article, I wrote, “What is fluid is the depth of the recession forecast by the wave. Fortunately, this can be controlled by monetary policy, yet even that is uncertain...”
What is happening in Europe today has shown how uncertain that can be. In my April 2010 article “Kondratieff Wave Comeback,” I concluded with, “I often wonder to what extent [Kondratieff] would change his charts if he had lived in today’s fast world, or if he would change them at all.”
FIGURE 1: KONDRATIEFF WAVE PROJECTED TO 2039. Here you see when the years of good times occurred and when the hard times occurred.