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The Kondratieff cycle - what awaits us in the coming years?

The Kondratieff cycle - what awaits us in the coming years?

created Jim PoniatNovember 25 2019

Does economics move in predictable waves, cycles or formations? There are many economists who believe that economics is predictable and that the time by the end of this decade will be hell on earth for the American economy, and thus for the global economy. Let's not forget that many economists have repeatedly predicted periods of crisis, recession or collapse of stock exchanges.

Of course, none of the theories described below are perfect, but the interesting thing is that the US economy is entering a very sharp turn again.

Be sure to read: Goodman wave theory as an alternative to Elliot wave theory

Does the Kondratiev cycle herald hell on earth?

One of the best-known theories of economic cycles is the so-called "Kondratieff wave". It was created by the Russian economist Nikolayev Kondratiev. As you can read on Wikipedia this economic theory led to the personal tragedy of Kontratiev. The theory of the capitalist, self-corrective cycle at that time was dangerously unacceptable to communist superiors, which ultimately led to the tragedy of Kondratiev.

Soviet economist Nikolai Kondratiev was the first to publish his observations on this subject in the book "Major Cycles in Economics" (1925). Two Dutch economists - Jacob van Gelderen and Samuel de Wolff - had argued the existence of the same cycle in 1913 before. Kondratieff's idea was not recognized by the Soviet government. Kondratieff was exiled to a gulag and shot in 1938.

 In 1939, Joseph Schumpeter suggested that this cycle be called "Kondratiewa Wave" in recognition of his merits. In recent years, interest in the Kondratiev cycle has increased.

What is the Kondratiev cycle

Here is an abbreviation of an article by Christopher Quigley explaining how this theory works.

The Kondratiev cycle

Kondratiev's analyzes explain how international capitalism goes through a lot "Great depression" which are a normal self-corrective part of the international commercial credit system. The long business cycle has been meticulously defined and named "Kondratieff cycle" and/ or "Wave K".

The Wave K has the 60 summer cycle (+/- several years) with internal phases that are sometimes defined as the seasons: spring, summer, autumn and winter:

  • Spring phase: increase in production coefficients, positive economic time, rising inflation
  • Lato: the arrogant peak of war, the following debt of the society, double-digit inflation
  • Autumn: the financial repair of inflation leads to an explosion of credit, which results in a false foundation of prosperity that ends in a speculative bubble.
  • Winter: financial surpluses generated by mass debt rejection, deflation of commodity prices and economic depression. Panic and the picture of economic extermination.

Increasingly, economists accept the excellent work of Nikolai Kondratiev. There are more and more reports, articles, scientific papers or books describing the cyclical phenomenon.

A very influential essay written by Professor W. Thompson from the University of Indiana, indicates that the K wave has influenced global technological discoveries since the year 900. In his diploma thesis, he claims that "modern" economic development began at 930AD in Sung Province, China. He puts forward the hypothesis that since then was 18 Fal K with the average length of 60 years.

What can await us?

According to research by Professor W. Thompson from the University of Indiana, we are just at the beginning of the road in depression, which will last until about 2025 year. Based on Professor Thompson's analysis, the long cycle K has evidence from around 1000 years ago.

If we accept the fact that most of the winter phase in the K cycle grass around 20 years, then we just went through half of it, which began around the 2000 year. There is a high probability that we have just emerged from the recession phase and entered the depression phase in 2013 year and we will be in it until 2020 year.

But, of course, the Kondratieff Wave is far from the only economic cycle theory that indicates that we are heading towards an economic crisis. Author Harry Dent's economic cycle theories also predict that we are on the verge of enormous economic problems. His main focus is demographics, and the fact that our population is aging rapidly is a major concern for him.

The following abbreviation is the sum of the main points that Dent makes in his new book:

  • “Young people cause inflation - they cost a lot and produce nothing. Of course, as a result, young people will join the workforce and start spending the money they earn ". Unfortunately, the United States has reached a demographic peak between 2003 and 2007 and is getting closer to a sharp cliff. Germany, Great Britain Switzerland follow the same path. China will be the first emerging economy falling off the cliff in the next few decades. The world community is getting older.
  • "American stock exchanges will collapse". Our long-term forecasts suggest another slowdown in the economy and the collapse of the stock exchanges between 2014 and 2015, at the latest in 2016. The worst economic trend will hit between 2014 and 2025 year. By 2025 at the latest.
  • "Everyday consumer has never come out of the last recession". The rich still feel great and spend money because asset prices are supported by monetary stimulation of the economy.
  • "United States and Europe are going in the same direction as Japan, which is still in a coma (for over 20 years) because it has not reduced the financial bubble " - Dent argues. "The only way out of this situation would be to stop the Central Bank from printing money."
  • “Reality is adamant, when there is an advantage of dying buyers, the market changes. Everything depends on the aging community " - Dent writes.
  • The United States has huge debt, a "Economists and politicians behave as if they had a magic wand without the constraints of monetary injection and aid to failing companies and the vision of a short-term crisis." But according to Dent, the problem is long-term and structural (demographic).
  • The biggest four challenges for the coming years are: 1) private and public debts; 2) health care and pension measures; 3) authoritative governments around the world; and 4) environmental pollution that threatens the global economy.

According to Dent: "You should prepare for the crisis we are in and which will last until 2025."

Like the Wave of Kondratieff, Dent's work indicates that we will experience a major economic crisis by the end of this decade.

Is history supposed to repeat itself?

Recent years show that the great economic crisis is around the corner. Problems of global key economies, Brexit, deteriorating market sentiment ... Let us hope that the above theories of economic cycles are wrong this time, but on the other hand it would be frivolous to ignore their warnings.Everything indicates that the great economic storm is fast approaching. And if you believe in the Kondratieff Cycle, now we should use a relatively quiet time to prepare for his arrival.

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About the Author
Jim Poniat
Canadian financial market analyst and trader with 14 years of experience. Author of two books specializing in Forex trading. From 2006 to 2008, he trained and gained knowledge from traders such as Bill Williams, Steve Nison, Martin Pring, Michael Duane Archer and many others. From 2008 to 2015, he ran an investment fund with several million dollars. During this time he cooperated with one of Canadian banks.