Joined: May 20, 2004 Posts: 235 Location: Sonoma County, Northern California
Posted: Mon May 02, 2005 10:33 am Post subject: Are we approaching a deadly "Kondratieff Winter"??
I looked up Kondratieff Winter after reading about it in a news item today - here at Peakoil.com.
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.”
I was not familiar with the term "Kondratieff winter" so I did a search and found that is is an long economic cycle first theorized by Nikolai Kondratieff, a Soviet economist during the first part of the 20th century. The best concise definition of a Kondratieff winter I found after a short Google search was this one from Sprott Asset Management:
Quote:
The winter (as per Kondratieff) is the phase (or ‘season’) of the broad credit cycle that follows the bursting of a financial bubble that was created by credit inflation. Throughout the history of finance (since money was invented), these bubbles get created and fuelled in the autumn when credit recklessly expands beyond all reason and prudence, and the bursting thereof invariably leads to the winter. These complete cycles are of very long duration (about 60 years, give or take), and the 1880s and 1930s are prime examples of historical Kondratieff winters.
The root cause of the Kondratieff winter is excessive debt. The reason this debt is excessive is that it was lent erroneously (in hindsight – of course, at the time it was considered a great investment decision) and systematically (so pervasive that it went beyond the every day occurrence of marginal bad debts). Because expectations did not come to pass, this mountain of debt is now non-productive, because the assets this credit was extended on are now non-existent or fictitious. The issue of how this massive, non-productive debt gets dealt with is what the Kondratieff winter is all about.
Since this debt cannot be repaid (For that to happen there needs to be real assets and/or earnings power, neither of which is the case because of the lie that was the bubble), it must be forgiven through default or bankruptcy. Needless to say, such a process can be quite devastating to the economy and to asset values. Which is why the authorities (the Central Bank) will try to re-inflate the bubble through further reckless credit expansion. But history has shown that, this time, the Fed will fail, and can easily make matters worse by creating even more paper when what is really needed is less (The current housing bubble being a case in point). The eventual outcomes of this fall from grace are the two dreaded ‘D’ words: deflation (of asset values) and depression (of the economy). This, in a nutshell, is the Kondratieff winter.
The statement that "Since this debt cannot be repaid..., it must be forgiven through default or bankruptcy" is interesting in light of the new personal bankruptcy laws. Do the White House and Congress see the winter ahead?
I welcome comments, especially from Montequest, one of our members with a good knowledge of economics and monetary systems. The Kondratieff winter senario makes sense to me on first read, but since it is an economic cycle, heavily based on political and economic systems without resource depletion tied in directly, I don't see a signs of a positive, upward trend to new heights after the next Kondratieff winter - especially because of the it's timing with respect to peak oil.
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)
?? _________________ If ...'If's' and 'But's' ... were Candy and Nuts ... we would all be happy and fat !
Of course an economist will counter that the global economy we participate in today, will null and void the principles of earlier economies.
I was in the process of creating a nice little peice of hot air in response to this when it hit me that it all boils down to this.
"Those who cannot learn from history are doomed to repeat it."
--George Santayana
so if the writing is on the wall, then the writting is on the wall.
I couldn't find a concise list of the Winter indicators, but the sources I did find all say we are horribly over due. And part of the theory is that the winter is unavoidable and any attempts to prevent it only postpone it and make it that much more disasterous (one source I found says the stock market crash of 1989 was the beginning of the autumn phase).
And if a comparison between the finacial situations of now and 1929 are any indicator of the coming winter; oh boy are we in for a cold one _________________ Angry yet?
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.
_________________ Do not underestimate the difficulties of surviving the transition of peak oil, nor the dangers of global warming. We must embrace nuclear energy and renewables.
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.
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! _________________ remember-we don't inherit the earth from our parents, we lease it from our children
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