Thursday, June 02, 2011

The Kondratieff Wave Revisited (reprinted)

I'm suffering from a little bit of writers block, here's a reprint from October 2006. The historical quote below, sounds a bit too familiar.

A while back, in May, 2006 I covered the Kondratieff wave and it seems to be more to the point as time goes by. Below is a link to a history lesson that's well worth reading.

The Kondratieff Wave

This gentleman's theories were published in 1925 way before the Great Depression. Here is a quote from the link, dealing with "The Autumn" just before "The Winter," labeled Depression.

Excesses of an unpopular war, along with fiscal liberalism, cause popular reaction toward stability or normalcy. A mood of isolationism permeates . The plateau period generally lasts seven to ten years and is characterized by selective industry growth, development of new ideas ( both technological and social ) and a strong feelings of affluence, terminating in a feeling of euphoria. The inflated price structure from the primary recession, along with the desire for consumption, produces a rapid increase in debt. Eventually, wealth consumption expands beyond all practical limits, and economy slips into a severe and protracted depression.

These cycles tend to be about 60 to 70 years long. If you think about it, everyone that was about 30 years old during the last depression is no longer with us. The group memory of the past depression is gone and most of the financial shenanigans going on, are "new" in our mind's eye.

The point about perceiving a depression, is that its only visible in your rear view mirror. The investment trusts that collapsed in the 1930's seem very similar to the index funds and derivatives of today.

As a post note: don't link a Depression automatically with deflation, hyperinflation is also an option. The Federal Reserve (with today's powers) and absurd national debts were not part of the mix way back then.


AIM said...

Couldn't you say that deflation is almost an impossibility if a country has a central bank that can print money? I think the only conditions we can experience in the future as a nation is... high inflation; hyper-inflation; stagflation; losing our reserve currency status or becoming part of a mix for a new reserve currency (usd, euro, yuan); and/or getting a devalued or new currency in this country in place of the USD.


Jim in San Marcos said...


I agree, I don't see any real deflation. Food and energy have gone through the roof.

I do think that lack of consumption in certain areas will bring prices down. Sports and entertainment could drop in price. We just told our cable company to take a hike and installed a high definition TV antenna.

I tend to think that the "reserve currency" issue is meaningless. No currency is linked to gold, so they are all just held on their "faith of value."

The collapse is just starting. Greece will be followed by Portugal and Ireland.

It's a little like a Monopoly game run amok where one player ends up with all the money. When it's a game, you start over and play another game. When it's real life, the winners want the game to go on and the conditions the losers face, is poverty.

It is the top 1 percent of the population that own 34 percent of the wealth that will take the big hit on this. It will be an invisible event to Joe-Six-pack. The more you have, the more you lose.

Somewhere down the line is a currency re-issue. The hundred dollar bill is our biggest bill. All that gets you is one bag of groceries and a tank of gas. If you are a smoker, a carton of cigarettes is $60.

Toilet paper rolls are one inch narrower as are Kleenex boxes. The one gallon ammonia bottles are now a half gallon. I bought my son some Chocolate coated vanilla ice cream bars, and they are real small now, as are the ice cream sandwiches. But I digress.

I think we could see a new US currency to replace the current one. It makes sense if only for one reason, it kills all of the dollars shipped out of the country from drug transactions. The amount of dollars shipped out could be in the trillions. That would be true justice, inflation rips off the Drug Dealers.

Anonymous said...


Here is another viewpoint to look at regarding inflation vs. deflation.

Shedlock says there IS deflation. Not to look at dollars (a small part of the money supply) but to look at credit. It is going down down down.

The rise in prices regarding food and energy is due to China, India and all the emerging markets with their demand. Plus, failed crops and agricultural shortages.

Bernanke's printing has just given speculators some extra money to goose up commodities.

Home prices continue to sink, same with commercial real estate. Lots of stuff out there on the secondary market (cars, equipment, etc.) is cheap. There are super low prices, big sales and giveaways in stores all over.

Things like furniture and electronics are overflowing in every thrift shop, goodwill, swap meet, garage sale, etc. You can stuff so cheaply today.

There is deflation too.

Anonymous said...

"We just told our cable company to take a hike and installed a high definition TV antenna."
Interesting. We just did the same thing. Perhaps it is a middle class trend now.

Jim in San Marcos said...

Hi Anon 11:30

I think that the viewers perception can find reasons to side with either deflation or inflation.

Increased consumption from China and India, I don't buy at all. With wages over there of about 50 dollars a week, the rising food prices have reduced their present food consumption. The riots in the Middle East, are over increased bread prices. Government instability can cause a horrible lack of faith in the currency which could be very inflationary.

Housing prices in our area still have to drop 50 percent to get rid of the bubble factor. When you build too many houses, like we did for 4 years straight, you're faced with a tremendous oversupply. Plus no one is looking for home ownership to make them wealthy any more.

If you step back to 1964 when we still had a silver currency, and look at the present buying power of that metal money today, prices haven't changed much. And if you happen to own a 20 dollar gold piece, you're going to want more than 20 paper dollars for it.

What we are witnessing at garage sales, is the new Walmart. When consumers need money, they sell what they have bought at a discount. If you give it a second thought, the garage sellers are consumers turned retailers. In this context, there are some very good deals, but not a sign of deflation, rather a sign of hard times.

If you put a 20 dollar gold piece in the palm of your hand and look at it, there is not much reason to conclude that deflation is in our midst. This was currency of the world 100 years ago. And it still is if you listen to the right people. It just "cost more" today.

Anonymous said...

yeah but come on;;; it is all about credit;;; not about dollars/cash;;; dollars/cash is a very small part of the money supply;;; it is all credit;;; you're being tricked into focusing on dollars/cash;;; bernanke has printed trillions but it has not done anything to really improve the economy or cause inflation;;; credit has crashed and imploded;;;


Anonymous said...

It is inflations, deflations, stagflations and recessions all mixed up and happening in cycles. We are going from one to the other. This is because our economy is not a mutant. It has been deformed and perverted by fiat money, credit created out of think air, central banks, government intervention, corporate manipulation and so on. The perversion is so deep it has created a mutant we've never seen before. No one understands what is going on. No one knows what is going to happen.

The EU and the Euro might disappear or become much smaller in the next 5 years. The US may truly fall away from the economic status and power it has enjoyed. China may become the largest economy for awhile, until India takes over (it has the demographics that will make it the senior economic power). They'll be a new reserve currency soon or a small basket of currencies will take the role. All of these things are possible but no one knows for sure.

Anon On A Calif Mtn said...

There is no way of correcting our troubles through the system here in the USA—and that goes for any other country.

There is no financial crisis. This is a political crisis (the "financial crisis" is just a dire symptom within the political situation we are in). If we don't solve this the "financial crisis" will continue to deepen, and all will be lost.

Our economic systems have been hijacked by privately owned financial institutions. We've handed the financial elites absolute powers over our economies, and thereby our lives and well being, as well as our childrens' futures.

Our politicians are all mouth pieces that have been bought and paid for and are in the pockets of the power elite.

Following the current events in our politics and system, looking towards our "leaders", voting for change, et al is all a waste of time.

A major revolution or evolution is needed to CHANGE THE WAY THINGS WORK in the USA. Nothing else can save us from falling into this abyss.

The hope is in the youth. It is up to them. They are starting to rise in the Middle East, Greece, Portugal, etc. They are our only hope.

If this isn't accomplished we will all be dependent on the banks for our personal survival. They will run the planet.

Anon On A Calif Mtn

Jim in San Marcos said...

Hi Anon on a California Mountain

Welcome, its been a while. I had to read your post three times to get into your groove of meaning.

The political aspects of what has happened to us are best summed up by the quote "The road to hell is paved with good intentions." When Congress got rid of the Smoot Hawley regs, it just about made stealing legal.

If the government had not bailed out the financial failures, we might have seen some hope. Failure is the way to thin the herd.

I tend to side with you in the hope that Greece, Ireland, and Spain take the Icelandic approach and tell the bond market to take a hike and default. That is what risk is all about, interest is a function of risk. No risk, no interest--sounds like our bonds (government guarantees keep rates artificially low).

Financial institutions like the Treasury, Federal Reserve have overstepped their mandate.

I tend to look at FDIC bank insurance as the last game of musical chairs in town. As long as Bernanke keeps the banks running (the music playing) there is no problem. At some time in the future, retirees will want to withdraw the dollars and spend them and there won't be much left to buy. When the music stops, hardly anyone will find a chair to sit in.

If we look at a bank as a collection of savers, I don't see a win situation here for the banks. The government borrows the money and just pays the interest while inflating the currency. The banks are being screwed and of course, Uncle Sam is more than willing to bail them out. At some point, people will demand a fair return or just not save.

With a rise in interest rates to say 10%, it's probably "Game Over."

It's a little like Simon Legree knocking on the door for the rent and saying "the rent or your daughter for a night." That's about the time that being on a California mountain might be beneficial--- to avoid the riots.

The young aren't going to be willing to pay for what you and I spent collectively in government mandates. Of course, Congress hasn't realized that--yet.

Take care

Anonymous said...

Calif Mountain is right. The system doesn't work. As long as politicians can be career politicians, are more concerned about the polls than their country, and can be influenced by money and lobbyists it will never work.

Most politicians are brain dead when it comes to understanding fiscal policy and economics. But many of them know what is going on. They just want to keep kicking the can down the road in the hope that something will come along and save us, or in the hope that they'll be gone and retired and collecting a nice big fat pension (courtesy of the tax payers) when the doo doo hits the fan.

(The unavoidable fact is that to handle the deficits and the budget the ONLY way it can be done is by addressing the entitlements which is almost 80% of our spending. No one will go near Medicare or Social security. Until we crash.)

This system will never take pre-emptive action due to its very nature. The house of cards will have to come crashing down and we will need to be in complete crisis before we will see change.

Big finance, the financial power elite, the banksters (or whatever you want to call them) have succeeded and now have major influence and control over the governments of the developed countries.

We'll all be working for the banks, under a lower standard of living, the middle class will continue to shrink in size.

Once the financial elite have finished sucking the West dry they will then move over to Asia and do the whole process all over again. The writing is on the wall.

How does the individual protect himself and his wealth from the stupidity and corruption and the resultant negative conditions that will soon rain down upon him?

I have no idea.

Jim in San Marcos said...

Hi Anon 10:54

I am in agreement with your first 4 paragraphs.

Your reference to "Big finance, the financial power elite, the banksters" are terms thrown about a lot that mean nothing. These abstract institutions are not going to survive this financial collapse, it will be their money that goes up in smoke.

Most rich people have no idea of what they are worth, their assets are not cash in the bank, they need a cash flow in, to pay the bills on assets owned and wages. I know the owner of a rest home out here that probably grosses a 15 million a year, a financial collapse would ruin him. His patients would be penniless. This is what we are facing, our currency losing all of its value.

Our government has borrowed 17 trillion dollars from the banks. When it was only a couple of trillion, the concept of future repayment was realistic. Right now we face the reality of not being able to meet just the interest payments, and our government wants to borrow another 2 trillion.

Our government has transitioned from borrowing to stealing. The final act is about to start, rich will be financially ruined as well as most of the middle class. No bombs or missiles, no physical destruction, everything will be standing, everyone's bank account will have a zero balance.

From there, your age, will determine how you will weather this "perfect storm." Us "Old Farts" get to take the hit, big time.

AIM said...

Most are afraid to state anything that might allude to the existence of a conspiracy because they don't want to lose their credibility.

There are many valid conspiracies. Many have tried to game the system, manipulate or take over certain areas of finance, government, etc. and some are attempting it now and some will continue into the future.

I agree with Anon 10:54. When financial power elite is mentioned I don't think it is referring to Well Fargo, BofA, Goldman Sachs, etc. They are in the public eye and most likely they are the tools of a higher financial power.

There is the International Bank of Settlements, the IMF, the big families with fortunes that have been loaned out, etc. To me, these are the entities that form the power elite.

Cash will be trash for sure. But someone is going to wind up with the gold and the assets. Someone will end up with control of the energy, oil, water, minerals, etc.
Right? Who will that be?

Whoever holds the notes to the collateral is the winner.

Who will that be?


Jim in San Marcos said...


Most of us will live for about 70 years and then die. I don't see any organization that will perpetuate itself except a government. So the "power elite" doesn't hold much meaning.

The expression "from shirtsleeves to shirtsleeves in 3 generations" pretty much defines how the rich become poor.

I think that the thing most people don't fully understand is that all people, what ever job they hold, want the best for their family. There is no power elite or Banksters, these are abstractions of our mind that we can't even point to. Real people run this world. Some go broke, others make millions.

I compare the "power elite" to "speeders on the freeway." They are all doing the same thing, but it's not a group effort.

Anonymous said...

A conspiracy is too incredible to believe would really happen;;; and that incredibility is how and why they can and do happen;;; there have been many in history;;; it is not just 70 years;;; there are trusts, legacies, proteges, familial and corporate baton passing;;; etc.

look at the rothchilds;;; they've been around for more than 70 years;;; been money lenders for many decades;;; and those who hold the gold make the rules;;; those with the gold have lots of influence;;;

there are guys with a strategy;;; you may find them to be unknowns sitting on the boards of certain financial institutions;;; not in the public eye;;;

they are in the background;;; invisible;;; hovering around The Bank of England, the World Bank, IMF, IBS, etc.

this is just the human quest for power, wealth and control on steroids;;; it's the corporate urge for big profits and total market share;;; it's the bank urge to be collecting interest from everyone;;; etc.

it's too incredible;;; it is like a comic book;;; it is like a B movie;;; an unrealistic espionage novel;;;

that is why conspiracies can and do exist

Anonymous said...

If THE FEDERAL RESERVE isn't a conspiracy, what is?

A private corporation that controls the currency of the USA? Charges the Treasury for the money it prints? Creates money out of thin air and loans it out? Not even a part of the government? Fights to avoid transparency and keeps information from Congress and the American people? Was created in secrecy? Was snuck into our legislation during the Xmas holiday season when Congress and America were distracted? If this isn't a conspiracy what is?

One of the older Rothchilds was quoted as saying something like -- "give me control of a country's money and I care not who makes the laws."

Read "The Creature From Jekyll Island" and try to refute that documented evidence.

I think that a central bank system was started up twice in our history here in the USA. I think it was Andrew Jackson who battled with the bankers and closed the last one down.

frakrak said...

I lean towards deflation, when the robbing Peter to pay Paul or the bailing of the Titanic with a thimble becomes just a little bit more pointless is when we will find out! When Benanke start M.E. the U.S. debt was 2 Trill, after two years it is 14 Trill? And most of this money has gone to foreign financial institutions to plug up leaks, the ship is still heading for the iceberg!

If this does hurt the power elite (comparatively) more, then you have to ask yourself the question if Joe and Jane main street are left with nothing, then what ever the elite have will be comparatively more than what it is valued today!!
I think this has alays been the game with capitalism! The figures on wealth accumulation don't really paint an ideal picture for too much stability ahead. We are not game players here, never have and never will be, think more of yourself along the lines of board pieces in monopoly.
Best solution is to join a church, become part of a community that you can be part of and be cared about and have the opportunity to care for others...
I can't recall a game of monopoly I've played when someone doesn't end up owning it all anyway :) That's the point of the game ....

AIM said...

I don't know if there can be deflation if we are not on a gold standard and we now have a central bank that can print as much money as they want.

I think the only reason the US depression of the 30's was a deflationary one was because we were on a gold standard and the Federal Reserve (created in 1913) due to certain restraints didn't or coudn't print money. And when they finally did it was too late.

Bernanke is TERRIFIED of deflation and I believe that he would print trillions and trillions and trillions and inflate like crazy to prevent a deflation.

Do you know of any country in all of economic history that was using a fiat currency and went into deflation?

Anonymous said...

aim is correct;;; the keynesian/monetarist mindset is structured to never allow deflation;;; that would strengthen the usd (good for the average citizen and taxpayer -- bad for the government) and it would collapse the value of assets -- bad for the banks;;; bernanke works for the power elite (those behind the big banks, brokerage houses, corporations and insurance companies) so he will inflate to save their assets;;;

that is actually gonna blow up in their face tho;;; isn't it?

because massive inflation will allow the lumpen masses to pay their debts and loans off with super cheap dollars;;; thus the big lenders (ultimately the power elite) are gonna get screwed too!

this certain mentality always amazes me;;; "i'll drill some holes in this boat and let water in and sink it and this will really put these people in a bind";;; the only thing the guy forgot about is that HE IS IN THE BOAT TOO!

those dopes known as the power elite or military-industrial complex will go down the tubes too;;;

i don't think anyone can benefit from hyperinflation or massvive deflation;;; everyone loses in the end;;;

we allow inepts, psychotics, criminals and sex perverts to run our governments;;;

what a planet we live on

Jim in San Marcos said...


Your point about the gold standard of the 1930's is an important difference from what we are dealing with now. The link to gold sealed their fate.

I don't think Bernanke is worried about deflation. His goal is to inflate the dollar by 90 percent. This preserves the status quo, the rich are still rich, but the debts would now be easy to pay. The fear of deflation is just a ruse to keep us from complaining about the obvious inflation. People tend to believe government press releases over what is written in a blog.

Nobody believed us in 2006 when we were discussing the real estate bubble.

Andre Ong said...

It's all about excesses and the ease of acquiring them....oil, material, 80% are actually non-essentials, getting into costly protracted wars (instead of limited engagements), etc..ignoring the payback consequences, blind arrogance of UNLIMITED wealth....and ease of borrowing without longterm repayment considerations and planning. (My 3 months salary of $15k got me a loan of $150k for downpayment of a house..3 months down, I lost my job, what next??) Print away the debt? The US is a great nation, but HONESTLY, CAN THIS GO ON?? 7-9-11