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Business/Finance See other Business/Finance Articles Title: To Die and Let Live To Die and Let Live Baltimore, Maryland June 27, 2015 Dear Reader, “[Free markets go] from crisis to crisis,” wrote Addison and Bill Bonner in Financial Reckoning Day, “from creative boom to creative destruction. From fully functioning, liquid markets to markets as frozen solid as the polar ice cap in the days before global warming… But now, in step the central banks. The boom is fine, they say, but we’ll put a stop to those nasty busts.” And here we are, seemingly on the edge of a currency crisis, but also staring at new, paradigm-shifting technology breakthroughs like “iCells.” How is it both outcomes seem simultaneously likely? The answer, or at least the context for an answer, comes by way of an early 20th-century Russian economist, Nikolai Kondratiev. His defense of capitalism found him on the wrong end of Stalin's Tokarev TT-33 pistol. Wave Cycle Video Kondratiev wrote about economic cycles that would take place every 50 years or so. After his death, Joseph Schumpeter labeled his idea Kondratiev waves, or K-waves. They are broken up into four “seasons.” Spring is the start of a boom; people start out weary of the market, only to be egged on by something like cheap credit. That’s when summer hits. As businesses starts to boom, people become more confident and start to enter the market. Inflation starts to creep in, real estate, stocks and gold and other commodities’ prices get pumped up. Then in autumn, debt begins to balloon and stock prices start to peak. People realize the state of affairs are unsustainable. All of the market’s supply and debt causes inflation to slow, setting the stage for winter. That’s when the bust sets in. Then all of the debt and oversupply is defaulted on and liquidated. After the system is flushed, the cycle starts all over again. By the K-wave standard, we’re entering winter. Western debt has come to a head, thanks to cheap credit. And cheap credit was enabled at the expense of the currencies we use. When a full-blown winter hits the, the old currencies will be purged and something new will emerge. As Jim Rickards predicts, that could be a new paper-money configuration based on the Special Drawing Right, a type of gold standard, or complete chaos. Each one of those possibilities are too hairy to untangle here today. That said, Addison has more thoughts on policymakers’ best efforts to create “all ‘summer’ and no ‘winter,’” as well as investment lessons, below... Cheers, Peter Coyne for The Daily Reckoning Poster Comment: The Kondratiev Cycle is the usual explanation of how capitalist markets expand and contract. Post Comment Private Reply Ignore Thread
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