Den folgenden Artikel von Clif Droke, einem Anhänger der Zyklus-Theorie, empfehle ich eurer besonderen Aufmerksamkeit!
November 29, 2008
Depression in 2009?
by Clif Droke
After suffering through the biggest stock market correction since the 1930s, many are wondering if the market - that great discounting mechanism - foresees depression in 2009.
The thinking behind this interpretation of the 45% correction is that the stock market envisions a collapse in GDP and the biggest downturn in consumer spending of the current generation. Could the bear market of 2008 in fact be warning us of economic gloom next year? Is the U.S. destined to start the path, in the words of one widely followed observer, to becoming a Third World country in 2009?
To answer these questions we must forsake conventional wisdom and put all emotions and personal biases aside. We must remember the words of Plutarch, who reminds us that "so incapable is human [emotion] of keeping any bounds...but moderation is best, and to avoid all extremes." Indeed, this discussion requires the utmost in sagacity and political neutrality, which admittedly is hard to affect in the prevailing climate of doom and gloom. We'll need to place all rhetoric aside as we carefully seek to answer this profoundly important question.
Let's begin with the observation that it's generally difficult, if not impossible, to predict a recession using traditional economic indicators. This refers to the statistics provided by the government. The reason for this is that the data are telling you what happened in the distant past and is by definition a lagging indicator, sometimes with no bearing on the distant future. Any attempt at economic forecasting using the government's statistics is merely an exercise in linear extrapolation. In order for an economic forecast to be valid, it must be based on leading indicators, none of which are to be procured from the offices of government.
Probably the best leading indicator available for predicting the future state of the business climate are the cycles. The market cycles are the lens through which the market typically discounts changes in economic activity some 6-9 months in advance. The market, with its millions of participants, many of whom have a vested interest in the affairs of the nation and a stake in business, are in a position to know the business outlook better than even the economists. These vested interests register their inside knowledge of the business outlook in the form of votes, either by buying or selling stocks. Changes in the demand for equities is largely a consequence of tight or loose money, which in turn is largely governed by cyclical forces.
The sustained selling pressure in equities this year was a consequence of tight money. Besides being the bane and scourge of stock investors, tight money is also a harbinger of diminished business activity. Liquidity is the lifeblood of the markets and with tight money come lower stock and commodity prices and eventually, diminished economic activity. Thus changes in the financial market usually precede the economy in heading into a slump since these prices are more liquidity sensitive and are the first to experience the results of major shifts in money supply.
Now before we go any further, let's take a moment to remind ourselves that as forecasting tools go, technical market analysis has a limited scope. It can't be used to predict the long-term market outlook (contrary to the assertions of some of its practitioners), but is much more suited to the short-term outlook for stocks. Nor is fundamental analysis of any use here. To get a picture, albeit a hazy one, of the distant economic picture we must resort to the yearly cycles.
The last time the U.S. saw a comparable period in its history was during the stormy final years of the nineteenth century, which happened to coincide (and was in no small measure attributable to) the bottoming of the previous Kress 120-year cycle. It would therefore do us well to study closely this epic cycle, as well as the literature and economic history of the previous 120-year cycle bottom. The past contains many portents for the future.
This epic cycle last bottomed in 1894. What were the economic conditions leading into that fateful year? In the wake of the Panic of 1893, here's what one contemporary newspaper chronicler said of the event: "Never before has there been such a sudden and shaking cessation of industrial activity. Mills, factories, furnaces, mines nearly everywhere shut down in large numbers....Hundreds of thousands of men thrown out of employment." According to H.W. Brands in his book, "The Money Men," many feared general unrest and even civil war. "In no civilized country in this century, not actually in the throes of war or open insurrection, has society been so disorganized as it was in the United States during the first half of 1894," wrote on editor quoted by Brands. "Never was human life held so cheap. Never did the constituted authority appear so incompetent to enforce respect for law."
The present 120-year cycle won't bottom until 2014. Could we be on the verge of an early onset of a depression similar to the one which gripped the U.S. in the 1890s? Will modern day America witness another massive deterioration in civil institutions and personal conduct among citizens? Can we expect riots, revolutions and industrial revolts just ahead?
Perhaps what we need right now to provide answers to the pressing economic questions of the times is another "Coin." No, I'm not referring to a new monetary unit but rather to a person. Back in 1893 this unknown financier made his appearance in Chicago and took the Windy City by storm. Coin was a boyish looking little man with a big knowledge of finance and monetary matters. Coin set up a financial school at the Chicago Art Institute on May 7, 1894 and opened it free to the public. The school was especially geared toward the young men of the city who had an interest in the economic affairs of the nation and who would one day be its leaders.
Coin's amazing knowledge of monetary affairs was soon the talk of the town and he quickly gained a following as he consistently packed the lecture hall of his "school" with the leading money men and citizens of Chicago, all of whom came to hear Coin's ethereal wisdom on the money question. Some of the older men in his audience were opponents of his monetary views and attended in hopes of tripping up the little financier during his lectures and putting him to shame. But Coin answered every one of their questions and objections with perfect poise and equanimity, silencing his critics and shaming all his detractors.
Coin was engaged in advancing a popular monetary position through his school, which at that time was a major point of contention among the rich, namely, the bi-metallic standard. Silver had been demonetized in 1873 (the "Crime of '73" as Coin called it) and the gold standard reigned supreme. Coin blamed the deflation of the 1880s and '90s, as well as the depression of the early 1890s, on the tight money condition that silver demonetization had created. In many ways, Coin's time wasn't unlike ours.
"Give the people back their favored primary money," Coin thundered from his platform. "Give us two arms with which to transact business! Silver the right arm, and gold the left arm! Silver the money of the people, and gold the money of the rich. Stop this legalized robbery that is transferring the property of the debtors to the possession of the creditors!" Coin believed that if silver was remonetized, the economy would be restored to its former glory as both prices and wages advanced.
"Citizens! The integrity of the government has been violated. A financial trust has control of your money, and with it is robbing you of your property. Vampires feed upon your commercial blood....Oppression now seek to enslave this fair land. Its name is greed...This is a struggle for humanity - for our homes and firesides, for the purity and integrity of our government."
With every sentence the young financier uttered, the audience cheered enthusiastically. Coin's monetary position to free silver was the soul of a heartfelt belief that the demonetization of silver represented a major constriction of the nation's money supply, and hence, a decline in productive output. At his Financial School lectures, Coin eloquently proved his proposition and backed up his claims with myriad statistics and ironclad logic. Among his attendees were the most famous money men of the day, including economic professors, Wall Street operators, bankers and Congressmen. As supporters of tight money, they all tried to deflate Coin's arguments but each one was shot down in his turn by the able little financier.
Addressing the major economic concern of his day, Coin had this to say about the deflationary depression of the 1890s: "During these years, all property gradually declined in value as compared with gold [the money standard of that time]. The decline was painfully steady. These conditions caused new debts to be contracted to pay old debts, and the volume of new debts were rapidly augmented. Those who could make nothing in their business borrowed money on their property to go into new ventures, and to meet their living expenses. Old debts were refunded. Falling prices continued, and borrowing continued until the spring of 1893, when [debt] had grown enormously."
Coin proclaimed, "The history of nations shows that when the debts of a country are two-thirds of the value of all its property, disintegration sets in: strikes, riots, revolution, provisional governments, as with our neighbors in South America at the present time.
"'Ah!' you may say, "Everybody is not in debt; one-half of the people may be, but let them liquidate and start over, then times will be good.' But everybody, except the money lender, is in debt. Your city is in debt twenty million, and you owe your part of it. Your country is in debt. Your state is in debt. Your general government is in debt. You are paying your part of the interest on all that; and your taxes in this city at the rate of 8 percent on the assess valuation is evidence that you are all in debt. Those who are personally in debt will only become bankrupt the sooner."
The lectures that Coin delivered at his Financial School were a resounding success and he was given "the biggest ovation ever seen in the city of Chicago, before or since" for his advocacy of monetary stimulus to combat the depression of the 1890s. We are told moreover that the audience greatly anticipated an encore performance from the brilliant financier.
An encore wasn't likely to happen, however, since the first performance never even took place. Coin was actually the fictional creation of one William H. Harvey, a die-hard silver standard advocate and a one-time presidential candidate. The book was written in dialogue form as if Coin was a real person and was heavily illustrated with cartoons to emphasize his points. "Coin's Financial School" was one of the best selling books in the early-to-mid 1890s and serves today as a representative of the deflationary literature of last century's 120-year cycle bottom.
"Coin" Harvey's solution for ending the depression of the 1890s was to remonetize silver, which was a 19th century argument for increasing the supply of money. Diminished money supply, Coin argued, played a big part in bringing about the deflation of those days. And so it is in our day as years of declining money supply - a veritable bloodletting of our economic vitality - has fostered conditions that could well end in depression if not dealt with properly.
Returning to our original subject of what of the year-ahead economic outlook, does 2009 hold forth the possibility of some measure of economic recovery and stability? Or is it fated to witness a deterioration of business activity to the point of bringing on a general depression - a depression comparable to the one of the 1890s? To answer this question we must once again turn to the Kress cycles.
The yearly Kress cycle configuration for 2008 showed the 6-year cycle bottoming in October. It wasn't the 6-year cycle alone that contributed to the chaos of this year; clearly it was a confluence of factors involving the credit crunch (a consequence of tight money), historic fear and panic among investors and the attending hedge fund/mutual fund liquidation. The 6-year cycle was leaning heavily on the financial markets this year until its October bottom. (There is yet one more significant Kress cycle bottom that must be reconciled before this year is over but we'll address that in the next installment). Once we get past the composite weekly cycle bottom in December, the market will finally have some cyclical "tail winds" instead of harsh head winds. In 2009 the 6-year cycle will be in the ascending phase, the 10-year cycle will be peaking and the composite weekly cycle won't be a negative factor.
The final "hard down" phase of the 120-year cycle doesn't begin until after 2010. That should give us at least two more years to prepare before we must face the harsh headwinds of this powerful cycle. The cycle winds won't be as harsh in 2009 as they were in 2008 and this should relieve a lot of pressure from equities, allowing for some significant decompression for it as well as for the economy. With the 6-year and 10-year cycles up, history shows that this cyclical configuration is benevolent for the economy if money supply is increasing. With the bailout efforts of the past few months taking full effect in 2009 this should mean the U.S. dodges the depression bullet next year.
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Eigene Anmerkungen:
1) Im Text steht folgendes Satzfragment: "... everybody, except the money lender, is in debt". In der aktuellen Phase sind aber nicht nur sehr viele "borrower", sondern zweifelsfrei auch eine Menge "lender" und "credit insurer" massiv "in debt", allen voran der Bund, der selbst der größte "borrower" ist. Und dieser versucht nun, hauptsächlich die großen "lender" aus dem Schlamassel zu ziehen. Hahaha!
2) Die großen Blasen der letzten Jahre (1995 - 2000 und 2002 - 2007, wenn man die letzte Blase, die Bondsblase, einbezieht, sogar bis dato) haben den Kontratieff-Zyklus erheblich verlängert. Von daher erscheint es mir nicht unrealistisch, wenn es nunmehr zu einer Verkürzung des 120-Jahre-Zyklus käme. Die dirigistischen Eingriffe in die "natürliche" ökonomische Entwicklung - insbesondere in den USA - waren und sind in der Wirtschaftsgeschichte bislang beispiellos. Ich befürchte, dass die aktuelle Anwendung des "Brechstange-Prinzips" in ein globales Desaster münden könnte - und zwar nicht erst in 2010.
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