This Russian Economist Died By Firing Squad, But He Had the Answer the Fed and Washington Are Looking For.

19 thoughts on “This Russian Economist Died By Firing Squad, But He Had the Answer the Fed and Washington Are Looking For.”

1. OCC’s Quarterly Report on Bank Trading and Derivatives Activities
   Second Quarter 2011

   http://www.occ.gov/topics/capital-markets/financial-markets/trading/derivatives/dq211.pdf

2. Ballooning Counter Party Risk. The probability of a grave correction in the near future seems very high. Perhaps it has started already.

   In 1990 World GDP was $22 Trillion,
   Total value of capital markets was $158 Trillion.

   In 2010 World GDP was $63 Trillion.
   Total value of capital markets was $1643 Trillion ($1.65 Quadrillion).

   Between 1990 and 2010 World GDP grew by 286% while Capital Markets grew by 1039%.

3. Thanks for the very timely and informative piece. I can't help but think like the little boy in Charles Dickens' 'Oliver Twist' who meekly asks of the headmaster: "Sir, may I please have some more", I would have liked the inclusion of the Euro and Swiss Franc included in your chart above. Oh, the REIT index and finally the 30 year US [IOU and you and you and you over there too] Treasury Bond also would have made nice additions. :o)

   PS, The Utility Index and the Emerging Markets' index would have been really nice as well.

4. In the U.S., the ratio of total credit market debt to GDP has been going down for the last 2-3 years.

   During the 1982-2000 bull market it went from 160-260% and so far during the current bear market of 2001-2030 (?) it rocketed up to 380% and had by end of June last declined to 350%. So, govt. has been taking on increasing debt loads in the last 2-3 years while businesses and consumers have started reducing theirs quite aggressively. This process will IMO continue until manageable levels are reached, probably half or less of current level. This should take about a decade, give or take. It´ll be the mommy of all corrections.

   The decline in debt/GDP from this level is a signal that we are headed for an extended period of apprehension about investing, borrowing and the markets. Extended periods of apprehension, disinvestment and caution lead to deflation as consumers and business pay off debt and hoard cash in anticipation of falling prices. We can see this process unfolding at an accelerating rate.

5. One small edit to pater's comment: "And once you think about the fact that humans ardently but mistakenly believe they act under their own free will... " etc. Otherwise, a good post.

6. The Kondratieff cycle is mainly a case of very inventive data mining. Once you dig actually deeper into those data, it turns out it is also a case of data-fitting. And once you think about the fact that humans act under their own free will, you realize it can not really have a basis in reality. There are of course economic cycles, but they are by no means deterministic.

7. Washington would prefer an economic cyclical contraction that will preserve the US empire status quo. First order of business is to breakup your biggest progressive competitor... the Euro. Countries like Greece who cannot print their deficits like the US are overrun by speculators selling the shit out of Greek bonds to 25% yield(insolvency) along with any other Euro country who is exposed to the mercilessness of speculators. Countries like England, France and Italy who do not have the sole resources to invade and conquer sovereign nations are greased with politics and tomahawk missiles into a drawn out conquest for Libya, while their economies suffer the cost. The 'order of business' for contraction is to liquidate the pyramid back into US dollars/empire rather than to a new empire(s). It is most difficult to argue that the US dollar is not the apex of the power structure of the US empire. People may think I am being far fetched to say that Washington aims to destabilize Europe as its first order of business, but I am simply following the money.

8. Bill, thanks for a more realistic account of Russian history. For the most part Russia was demonized with endless lies from US propaganda.....gulag this.....firing squad that rammed into the minds of the masses. We get the same crap about Islam, Gaddafi etc.

   An economic depression would be good for this country, morally and spiritually. I'm sick of the lies, theft, murder and corruption.

9. Check out this wisdom from the Chinese finance chief from the G-20 meeting:

   ---It is unlikely that the global economy will slide into another slump, in part because “the whole world is still at a very low level” of activity, Yi said. “We have a very moderate recovery” following the financial crisis, which indicates global growth “won’t decrease too much,” he said.---

   http://www.businessweek.com/news/2011-09-23/china-japan-say-europe-must-find-its-own-fix-for-debt-crisis.html

   Could it be that those jokers at G-20 got the wrong kind of mushrooms at dinner?

10. Kondratieff wasn't shot. Stalin, aware of his work on economic cycles, commissioned him to discover when capitalism would enter its final contraction, the one from which it would never recover. Kondratiev discovered that whilst capitalism would have endless contractions, some very deep, they always contained within them the seeds for the next expansion. This was definitely not what Stalin wanted to hear and Kondratiev was rewarded with a carreer change from world famous economist to Siberian salt miner. He was never seen again.

    The problem today is that capitalism is constantly frustrated by politicians (elected and unelected, national and international, central bankers. World Bank, IMF, UN - all that self-serving gang!) Contractions are just as much part of economic life as expansions. They must be allowed to clean away the excesses of the previous expansion for the next to begin. Politicians can always be relied upon to bankrupt their countries. I grew-up in a country that employed them honestly and gainfully hand-hoeing potatoes and breaking stone for the building industry. Life was serene! Now again politician-run it is once more virtually bankrupt!

11. I think the onset of the Kondratieff Winter has been delayed (the wave extended) by at least 20-30 years through incredible advances in technology and productivity in recent decades. These are very strong deflationary forces and are bound to get stronger still in the foreseeable future.

    Now, in order to absorb the rising mountains of merchandise and goods from those technological/productive advances consumers would have needed rapidly rising wages/purchasing power. This was impossible and will continue to be impossible. Yet, those mountains were and will be up to a breaking point absorbed through rapidly increasing indebtedness. At some point the system reaches an inevitable end station from over-saturation of supply and indebtedness, those exponential curves stall and demand failure in the face of rising prices sets in, which leads to a deflationary correction, what you absolutely don´t want to see in a debt-driven and debt-laden economy.

    The powers that be have tried to delay the onset of this deflationary outcome through massive money printing and record low interest rates and diverse wars on dubious pretenses but unfortunately the higher the j-curves rise the harder they eventually and inevitably crash.

    At this point I believe that these massive forces of deflation can´t be defeated unless debts and derivatives problems are resolved by either making payment or they are written off to a great extent. Again, bear in mind that we're in a huge wave of technological and productive advances that will keep rising for decades to come.

12. Nice post, Adam, and of course very timely.

    Re this:

    "One minor problem. The 70′s recession was a primarily result of the ending of the Vietnam debacle."

    Get yourself a copy of Precther's 'Elliott Wave Principle". On page 186 there's a Kondratieff chart that will blow your mind. The 'problem' isn't Kondratieff, it's that you don't know enough about his work to comment meaningfully on it. (Although, come to think of it, when did that ever stop anybody on the Internet?)

13. As an international economist I believe matters are as simple as some describe; but unusual in one mega respect wrt to the 'new kids on the block'(especially the ex-communist countries) which just about every commentator is ignoring.

    1) The 'developed world' ran up huge debt so that most sectors are hugely over-leveraged.

    2)The tipping point was passed and we are in a non-standard cycle, that is extended period of DE-LEVERAGING( the most important word in the world right now); made worse necessarily by asset price falls and inevitable write-offs.

    3)Much of the fast developing world is not anywhere near as over-leveraged and fortunately not near any general tipping point; incl China.

    4)So Kondratiev or whatever you call it is restricted to lets say the OECD and satellites, but its terrors will be significantly moderated by the effect of demand for goods from the fast developing world as well as tailored money printing when needed: the latter being critically import to stop excessive deflation (ie negative inflation)and/or disorderly collapse of large banks when either threaten: as opposed to being used to try and reverse the long term cycle( please note the distinction Republican candidates).

    5) The world economy was at capacity recently because there were not enough raw materials to go around. The rapid emergence of ex -communist counties had not been anticipated by miners etc.

    6)Finally, right now, OECD growth is decelerating to medium term very low level or worse growth rates in a determined, irreversible way which will free up resources for the rapidly growing developing countries to use. This is so important.

    7) Mining and energy investment and investment in / creation of new more efficient technology will make room for the whole globe to move forward in the late 20teens or early 20s; when the OECD area has gone through their serious but not 1930s style vicious de-leveraging /deflationary period(or super cycle). Hopefully they will find ways growing more food!

    PS It might be useful / interesting to follow an Asian ETF.

14. dick,

    the answer to your simpleton question is a resounding "yes"

15. The point of Kondrattieff cycles is that it really doesn't matter what governments do or political leaders say, or how historians interpret events... there are natural rhythms in the affairs of mankind that are immutable. After the fact, observers in their pride can attribute whatever happens to this or that cause. The deeper truth is that there are simply cycles to which we are subject. In coming months, next year, according to some observers of Kondratttieff, it will be time for another cataclysmic war. We think we are in control of our fate but, as Shakespeare wrote, "We are such stuff as dreams are made on..."

    The cloud-capp'd tow'rs, the gorgeous palaces,
    The solemn temples, the great globe itself,
    Yea, all which it inherit, shall dissolve,
    And... Leave not a rack behind.
    We are such stuff
    As dreams are made on...

16. DOLLAR INDEX
    Trading Instruments:
    Non Leveraged ETF’s: (Long UUP) (Short UDN)
    Leveraged ETF’s: (Long UCO) (Short DTO)

    Just a note that those leveraged ETFs are for Oil, not the dollar.

17. So easy for the victims to criticize the Gov't who is doing it's best to satisfy the public. Would you stand by helplessly and not make any attempts to show that you are trying to soften the blow of these collapses? That is all they can do.
    Tell me one thing you would do.

18. Congratulations on finally discovering Kondrattieff!! Of course we are in the Kondrattieff Winter portion of the economic cycle. However, that IS NOT THE PROBLEM. Left alone, the Winter Cycle would conclude and go on to Spring and Summer and the return of good times. THE PROBLEM IS (and no one seems to either want to admit or understand) that The IDIOTIC Federal Reserve, headed by Uncle Duffus (Helicopter Ben) Bernanke has been bound and determined to short circuit the Winter Cycle by pumping a wasted $3 TRILLION!! into the system and keeping interest rates BELOW the inflation rate, TO NO AVAIL (by its own admission yesterday, 9/21/11). Of course, Uncle Duffus is merely exacerbating exponentially a practice initiated by Mumbles Greenspan. He once remarked that: "I can hardly wait to print my way out of a Kondrattieff Winter"!! (And this other idiot was Knighted!!!) Is it any wonder that we are in such trouble? For illuminating reading try: "EMPIRE OF DEBT" by W, Bonner and A. Wiggin, two NON-ESTABLISHMENT ECONOMISTS.

19. One minor problem. The 70's recession was a primarily result of the ending of the Vietnam debacle. The Great Depression, though very much ameliorated by progressive economic policies, had effects that lasted until WWII. In the current mess, brought to you by corporate thugs and their pals bush and dick, the country was involved in two wars simultaneously as the economy tanked. Massive deficits caused by two needless wars and needless kickbacks to rich campaign contributors didn't help - they made matters worse. The only way for this country to crawl out of this mess is to restore pre-reagan tax levels, massively increase revenue, end the wars, cut "defense (corporate welfare)" spending by a minimum of 50%, and launch a major effort to rebuild the country's infrastructure, along with WPA / CCC style direct hiring. This won't happen because the same corporate thugs that tanked the economy are in total control of the political process, not to mention the stooge media.

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