[Dvanharn]

I looked up Kondratieff Winter after reading about it in a news item today - here at Peakoil.com.

$this->bbcode_second_pass_quote('', ' ')When the Kondratieff winter finally pays us a visit, we will see American poverty in living Technicolor, the likes of which has not been seen since the 1930s. The Kondratieff winter will serve to break apart the ongoing phony market intervention schemes that try to defy natural God-given laws such as the arrangement whereby countries with massive trade surpluses recycle savings into the U.S., keeping interest rates below equilibrium and the dollar at above its natural value. When interest rates rise, Americans will be forced to live within their means, and, given our spoiled condition, that will be very difficult for us. As all that unfolds, it will become clear that enormous wealth has shifted from the West to Eastern economies, most notably China and India. That process has been well underway for the past few years, but the severity of this shift of wealth will become most obvious when the system breaks down and when Americans can no longer “borrow or over-consume their way to prosperity.”

[RiverRat]

Are we approaching the Kontratieff Winter?

What key indicators did he extract that led up to the winters of 1880/1930?
What ‘expectations that did not come to pass’ triggered it?

If today’s indicators mirrors 1880 and 1930, then in theory one could postulate the inevitable. Of course an economist will counter that the global economy we participate in today, will null and void the principles of earlier economies.

We know that the US has an abysmal savings rate … 0.4%.
We know the average credit card balance is approaching $9,000.
We know that cash-out refinancing, ARM’s and interest only loans are at record levels.
We know that the US National Debt stands at 7 trillion 787 million dollars.
We know that there is a severe trade imbalance (61 billion in Feb)

??

[FoxV]

$this->bbcode_second_pass_quote('RiverRat', 'O')f course an economist will counter that the global economy we participate in today, will null and void the principles of earlier economies.

[FatherOfTwo]

Well, in a “properly functioning” economic system, it may be that we are approaching a winter. But consider this:

From http://www.energybulletin.net/2754.html
$this->bbcode_second_pass_quote('', '
')Here's the big problem. There are now so many countries holding so many US treasury bonds that the US is categorically not capable of paying them all off. That's right, boys and girls. If everyone we owe money to called in their debts, Uncle Sam would be bankrupt. So no one is going to do that, because if Uncle Sam goes bankrupt, what will happen to all those treasury notes in our central banks? The US can now borrow from as many people as it wants, and the debt turns into further security against anyone calling in the debts.

Michael Hudson, the financial historian who authored Super Imperialism - The Origin and Fundamentals of U.S. World Dominance, explained in a 2003 interview:


The U.S. has said it can't pay back its dollar debts and doesn't intend to. As an alternative, it has proposed "funding the US dollar overhang" into the world monetary system. Other countries would get IMF credit equal to their dollar holdings, but these holdings no longer would be US Treasury obligations. The US would wipe its debt to foreign central banks off the hook. This would mean that it would have got all the balance-of-payments deficits for the past 32 years for free, with no quid pro quo.

The US has been proposing this for 30 years whenever Europe raises the issue of payment for its dollar holdings. American diplomats have said that they won't allow central banks to use their dollars to buy US corporations, for instance. When OPEC countries proposed this after 1973, the US Treasury reportedly informed them that this would be considered an act of war.
Meanwhile, people still have to have dollars to pay their international debts. Where do you get dollars? From the United States, of course. So the treasury note system has other countries locked in at the central banks, and the need to pay off bigger and bigger external debts - in dollars - forces the majority to convert their entire economies away from local development - like the old import substitution industrialization (ISI) strategy - into export commodity platforms oriented to the US. "The US makes dollars; everyone else makes things to get dollars."

The two pillars of the US imperial edifice are monetary and military. And the development of this unique ability was closely related to the unique geographical position of the United States, outside the lethal circumference of European wars.

[jaws]

Sounds a lot like Irving Fisher's debt deflation theory. Fisher was the guru of neoclassical economics in the US during the 1920's and predicted that 1929 was a permanently high plateau. His fortune was wiped out shortly after and his sister had to support him during the depression. He came to his senses and rejected neoclassical economics when he came up with the debt deflation theory of depressions in 1933.

In a nutshell what happens is that highly-indebted people realize the future value of their assets won't allow them to repay the debt, thus they have to make up for the shortfall in debt payments out of their other income. This causes demand for goods to fall and thus prices and income to fall, as well as employment. The economy is locked in a vicious cycle of compression. This isn't helped by the fact that debt holders have a lower propensity to consume than borrowers, and the relative wealth of the debt holders increases in deflation.

[vegasmade]

We are now officially doomed!
I knew our economy was in horrible long term shape, but precedence, that's just too much. I suppose the ruling elite is quietly putting their money in the mattress, while the middle class is as indebted as ever. Banks will crumble and the government won't be able to help. America will then be sold to the crooks who watched it happen. Since we are due, I imagine the current legislation isn't a coincidence. As we all default, due to the obvious unemployment, our homes and businesses will be centralized. Someone else will own our lives.
Imagine, the minute men in Arizona will be reporting us as we flee south. lol Does this sound like NWO to any one else. Maybe not the world, yet. Just shoot me now!

[ONASIS]

Hi -

I only have a Post Grad Education in Marketing, so don't profess to be an economist !

However, a few years back (15+), I came across ideas relating to The Kondrotieff Cycle (on line resources at http://www.thelongwaveanalyst.ca/cycle.html), which if I understand it correctly, asserts that all economic activity is cyclical in nature - i.e. from high - low - etc -

From analysis of graphs, etc., it seems that we are now on some sort of winter 'plateau' which will lead to a massive deflation phase + eventually 'cleanse' the Global Economy of debt via payback or bankruptcy.

Then I understand, that just as in natural selection / evolution / etc, the economic 'survivors' will then go forth + build a new economic system / new industries / - e.g. based on the works of Schumpeter + 'Creative Destruction' of Capitalism.

Thus, with the advent of Peak OIl, do you think that 'Humanity' will emerge into a new 'Golden Era' or a dystopian landscape ?

I have also included some data on the Kondrotieff Cycle below.

Best Regards,
ONASIS

The Kondrotieff Cycle

Determination of mood
A Kondratyev cycle consists of four distinct phases, or distinguishable, dramatic mood changes, the tone of which determines the actions of individuals involved in the economy. The awareness of these characteristics allows for the anticipation of the change in the economy and the psychological mood that will prevail.

The Growth Phase
A common premise among business cycle economists supposes inflation as an inevitable part of growth. Government becomes a passive participant in the inflation cycle. Growth begins from a depressed economic base and expands in an ever-increasing spiral. The interaction of the participants within the economy causes wealth, as represented by savings, and the production of capital equipment to be accumulated for the future. The expansion of production and affluence causes prices to rise, and the increased volume of goods requires a higher velocity of money, thus creating a higher price structure.

Historically, the growth phase requires 25 years to complete. During this time, unemployment falls, wages and productivity rise and prices remain relatively stable. The mood of the growth phase is one of accumulation and the desire for new product manufacture.

Accompanying growth is a shift in social demands. As wealth is accumulated and new innovation introduced great upheavals and displacements take place. The process of social unrest builds with growth culminating in massive shifts in the way work is defined and the role of the participants in society.

Primary Recession
Eventually, the continuation of exponential growth reaches its limits. Excess capital produces a shortage of key resources and the economy enters a period where growth creates a shortage of resources. An economy will only support expansion to the limits of its resources, both human and material.

The mood of affluence also brings a change in attitude towards work. As an economy gets closer to its limits inefficiencies build up

The imbalances of this period have been historically exaggerated by what can be labeled a "peak war". Examples such as War of 1812, the Civil War, World War I and Vietnam, came at the end of a very affluent period. These Wars produce strains on the economy increasing the impact of inflation. A dramatic drop in output, rapid rise in unemployment and unusually severe recession characterize this period. Although this primary recession is short lived lasting only three to five years, it is key in altering perceptions and the structure of the economy. No longer does excess create an abundance. The "Limits to Growth" now define a maximum level of economic activity that traps the economy into consolidation and tight bounds for the next 20-25 years. With the change comes a conservative shift in the popular mood reinforcing the limits..

Plateau Period
The primary recession occurs out of an imbalance forced upon the economy by real limitations. The rapid rise in prices and changes in production correct this imbalance -- at least temporarily. The change in price structure, along with the mood of a population used to consumption accompanied by the vast accumulation of wealth from the past 30 years, causes the economy to enter a period of relatively flat growth and mild prosperity. Due to structural changes and the limits of the existing paradigm the economy becomes consumption oriented.

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.

Secondary Depression
Excesses of the plateau period effect a collapse of the price structure. This exhaustion of accumulated wealth forces the economy into a period of sharp retrenchment. Generally, the secondary depression entails a three year collapse, followed by a 15 year deflationary work out period. The deflation can best be seen in interest rates and wages that have shown a historic alignment with the timing of the Long Wave - peaking with and bottoming at the extremes.

Kondratyev viewed depressions as cleansing periods that allowed the economy to readjust from the previous excesses and begin a base for future growth. The characteristic of fulfilling the the expectations of the previous period of growth is realized within the Secondary Depression or Down Grade. This is a period of incremental innovation where technologies of the past period of growth are refined, made cheaper and more widely distributed. Incremental innovation consolidates industries.

As increment innovation narrows profits and increases

The Down Grade sees one final period of recession before transitioning to a new period of growth. The final recession is mild with very low inflation and appears far more severe than it will be remembered for later in the Growth Cycle.

Within the Down Grade is a consolidation of social values or goals. Ideas and concepts introduced in the preceding period of growth while radical sounding at the time become integrated into the fabric of society. Often these social changes are supported by shifts in technology. The period of incremental innovation provides the framework for social integration.

It is important to realize the Long Wave as global. While global issues are of prime importance today with increased air travel and communication, the Long Wave defines a time table for geo political events. The Growth Period is one of political stability. Staring a the peak old alliances become challenged. Through the process of the Down Grade old alliances fail and new alliances are formed. The final stages of the Down Grade is a period of coalescing or "quickening" of the alliances that will govern the next period of growth.


++++++++

[MicroHydro]

"Thus, with the advent of Peak Oil, do you think that 'Humanity' will emerge into a new 'Golden Era' or a dystopian landscape ?"

The dystopian landscape is already here. The slums of Rio, Lagos, Mexico City. Failed states like Somalia, Haiti. Environmental diasters like China, Madagascar, the Aral Sea.

Peak oil will simply bring the present global reality home to the wealthy nations of the north.

There could be a new golden era somewhere by 2100, if the world population is reduced below one billion.

[killJOY]

$this->bbcode_second_pass_quote('', '"')Thus, with the advent of Peak Oil, do you think that 'Humanity' will emerge into a new 'Golden Era'"

[bobbyald]

With my economic hat on it would appear that a recession/depression is not only likely but probably a necessity in order to clear the way for the future. The people and governments have become too complacent and lost their way. They know the price of everything and the value of nothing. After that we are in for a golden age.

With my peak oil, peak population hat on we get the makings of the perfect storm. The coming depression will be hard and very, very long. At the end of it there is no golden age unless many, many, many people die. We somehow need to get back in balance with our environment and when we do many of our natural resources will simply not exist.

[jimmydean]

Very interesting reading.

It's quite scary how accurate the simple 4 cycle model is especially with the current economic news mirroring the winter cycle. GM F reduced to junk bond status could be the first corporate giants to go bankrupt in 5 years. U.S. government and households with record debt.

I can't help to think that the fed is aware of this and is artificially postponing disaster with artificially low interests rates and greater money supply for so long. How many more big corporations can go bankrupt without affecting the banks.

Winter cycle + PO occurring together could make the 1930 depression look like a cake walk.

[roccman]

Is it time...

I give it 3 weeks.

$this->bbcode_second_pass_quote('', 'T')o introduce the Kondratieff Theory, we must go back over seventy years and examine a remarkable story in economic history, encompassed within the life of one still little known man. I am certain that, in time, Kondratieff will rank with the giants of discovery as Einstein and Newton. Like these men, his insights have begun to alter radically and permanently our perceptions of economic history. The Kondratieff wave cycle goes through four distinct phases of beneficial inflation (spring), stagflation (summer), beneficial deflation (autumn), and deflation (winter). Since, the last Kontratyev cycle ended around 1949, we have seen beneficial inflation 1949-1966, stagflation 1966-1982, beneficial deflation 1982-2000 and according to Kondratieff, we are now in the (winter) deflation cycle which should lead to depression.

[Andrew_S]

For investors one of the more interesting charts displaying the Kondratieff cycle is how many ounces of gold buy the Dow Jones Industrials:
[web]http://www.thelongwaveanalyst.ca/DowGold/DowGold.htm[/web]
Notice that at the end of the winter from 1 to 2 ounces buys the DJIA.

We're supposed to be in the Kondratieff winter now, and despite some appearances (like the stock market so far) seem to be on course.

[Armageddon]

As long as they can keep printing money, can't they keep it going for a while ?

[Armageddon]

$this->bbcode_second_pass_quote('pstarr', 'W')asn't the supposed "Great Depression of 1990" (a book by Ravi Batra) based on this same curve? Why should I believe it this time?

[Iaato]

I like the graphs on that website, Andrew, thanks. Gordon has got some interesting insights.

I think Kondratieff has (had?) a good point about cyclical pulsations over the medium to long term in economic cycles, but his theory washes out because it's not based on energy. If you throw in our one giant energy pulse of the last 100 years, what's getting ready to happen to us now is about the larger pulse of overshoot rather than a recurring shorter term cycling of the economy. It's just bad luck that the winter cycle is going to coincide and be far overshadowed by the overshoot.

[Andrew_S]

$this->bbcode_second_pass_quote('Iaato', 'I')f you throw in our one giant energy pulse of the last 100 years, what's getting ready to happen to us now is about the larger pulse of overshoot rather than a recurring shorter term cycling of the economy. It's just bad luck that the winter cycle is going to coincide and be far overshadowed by the overshoot.

[Andrew_S]

$this->bbcode_second_pass_quote('Armageddon', 'A')s long as they can keep printing money, can't they keep it going for a while ?

[threadbear]

$this->bbcode_second_pass_quote('pstarr', 'W')asn't the supposed "Great Depression of 1990" (a book by Ravi Batra) based on this same curve? Why should I believe it this time?