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June 29, 2010
SouthAmerica: Reply to Misthos
Paul Krugman is right about recognizing that we are descending into a new Great Depression, but here is the best explanation of what is at the core of our economic and financial problems.
In a Nutshell:
The truth is the world is overdue for a new economic depression. Historically we had a depression in the world once every 55 to 60 years. The last world depression was over 60 years ago. A Russian economist, Nikolai Kondratieff, published a study in 1926 showing that a very long-term economic cycle existed. His major premise was that capitalist economies had a pattern of long wave cycles of boom and bust. The bust cycle repeated itself approximately every 60 years. If you had read Kondratieff's paper in 1926, you would have known that an economic depression was around the corner.
Nikolai Dmitriyevich Kondratiev (1892-1938) was a Russian economist, who was a proponent of the New Economic Policy (NEP) in the Soviet Union. He was executed at the height of Stalin's Great Purge and "rehabilitated" fifty years later.
He proposed a theory that Western capitalist economies have long-term (60 years) cycles of boom followed by depression. These business cycles are now called "Kondratiev waves", or grand supercycles.
In 1924, after publishing his first book, presenting the first tentative version of his theory of the major cycles, Kondratiev travelled to England, Germany, Canada and the United States, and visited several universities before returning to Russia.
A proponent of the Soviet New Economic Policy (NEP), Kondratiev favored the strategic option for the primacy of agriculture and the industrial production of consumer goods, over the development of heavy industry.
Kondratievâs influence on economic policy lasted until 1925, declined in 1926 and ended by 1927. Around this time, the NEP was dissolved by a political shift in the leadership of the Communist Party.
Kondratiev was removed from the directorship of the Institute of Conjuncture in 1928 and arrested in July 1930, accused of being member of an illegal and probably non-existent âPeasantsâ Labour Partyâ. As early as August 1930, Soviet Premier Joseph Stalin wrote a letter to Prime Minister Vyacheslav Molotov asking for the execution of Kondratiev.
His last letter was sent to his daughter, Elena Kondratieva, on 31 August 1938. Shortly afterwards, on 17 September during Stalin's Great Purge, he was subjected to a second trial, condemned to ten years without the right to correspond with the outside world; however, Kondratiev was executed by firing squad on the same day it was issued. Kondratiev was 46 at the time of his execution and was only rehabilitated almost fifty years later, on 16 July 1987.
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We are in a business cycle, but not the usual business cycle that most people have in mind. We are in one of these grand supercycles also known as "Kondratiev waves"; capitalist economies have long-term (60 years) cycles of boom followed by depression. We have reached the depression area of the cycle.
Nikolai Kondratiev, published a study in 1926 showing that a very long-term economic cycle existed. His major premise was that capitalist economies had a pattern of long wave cycles of boom and bust. The bust cycle repeated itself approximately every 60 years. If you had read Kondratiev's paper in 1926, you would have known that an economic great depression was around the corner.
Kondratiev identified four distinct phases the economy goes through during each cycle: 1) Inflationary growth, 2) Stagflation, 3) Deflationary growth, and finally 4) Depressionâfalling prices, falling stock prices, falling profits, debt collapse.
As the stock market and banking system is collapsing, a number of corporate scandals emerge such as Enron, WorldCom, Global Crossing, Adelphia Communications, Arthur Anderson, Bear Stearns, Lehman Brothers, sub-prime scandal, hedge fund scandals, Bernie Madoff scandal, âGoldman Sachs the Pillage Peopleâ scandal, Citigroup scandal, Merril Lynch scandal, AIG scandal, and many others. And many other financial institutions went out of business and its pieces were absorbed by a number of American institutions that are not in sound financial shape themselves.
As the debt load reaches new highs in the economy, the result is a record-breaking number of personal and corporate bankruptcies including General Motors (GM), and Chrysler as it happened in the United States. (They also had major bankruptcies and bank failures in Europe.)
We saw the collapse of symbols of American capitalism such as General Motors (GM), Chrysler, and the US government was forced to nationalize the real estate industry in the United States with the US government takeover of âFannie Mae and Freddie Macâ.
It is no secret, and the Financial Times (UK) had a front-page article on June 28, 2010 on another moving part of this very complex financial and economic system - âStatesâ budget crises threaten to âdestroy social fabricâ of the USâ. Today we have a major economic and budget crisis in many states around the United States, and very fast they are becoming basket cases including California, New York, New Jersey, Illinois, Michigan, and many others.
Believe me, when I say to you that the new global economic depression is underway - and it is right on schedule.
Sure we have had massive US government intervention in the market place in the last 2 years to keep the US economy afloat a little longer, and the only reason the financial institutions are reporting any earnings (artificial earnings) is because they changed the accounting rules to help the financial institutions manufacture their fake earnings â if they all apply market to market accounting rules then their earnings sink like the Titanic â and some of these institutions probably would be driven out of business. It is like living in the world of illusion at the highest degree.
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I would like to add to the above âPerfect Stormâ also the observations that Alvin Toffler made about the US economic system on his book "Revolutionary Wealth"
âBrazil and the New Economic Miracle.â Written by Ricardo C. Amaral
Brazzil â Friday, 23 April 2010
http://www.brazzil.com/component/co...racle-the-us-has-a-lot-to-learn.html#comments
Quoting from the above article:
â¦The Global Clash of Speeds
In December of 2006 I read a very interesting new book "Revolutionary Wealth" by Alvin Toffler. He said a lot of insightful things in his book and in chapter 3 "The Clash of Speeds" - he said the following: "The countries with the key economies in today's world - the United States, Japan, China, and the European Union - are all heading for a crisis that none wants, that few political leaders are ready for, and that will set limits on future economic advance. This looming crisis is a direct result of the "de-synchronization effect," an example of how we mindlessly deal with one of the deepest of all the deep fundamentals: Time.
Nations all over the world today are struggling at different rates of speed to build advanced economies. What most business, political and civil leaders have not yet clearly understood is a simple fact: An advanced economy needs an advanced society, for every economy is a product of the society in which it is embedded and is dependent on its key institutions.
If a country manages to speed up its economic advance but leaves its key institutions behind, it will eventually limit its potential to create wealth. Call it the Law of Congruence. Feudal institutions everywhere obstructed industrial advance. In the same way, today's industrial age bureaucracies are slowing the move toward a more advanced, knowledge-based system for creating wealth...In all these countries, key public institutions are out of step with the whirlwind of change that surrounds them."
Anyway, the book has 500 pages and one of the things that he mentioned in his book and I did not forget, is that the most extraordinary thing today is that we still can function at all here in the United States - he shows with many examples how everything is getting completely out of sync.
Not only here inside the US economy, but it is amazing that the US still is able to do business with countries from around the world when everybody is moving at different speeds.
By the way, one of the points that Alvin Toffler makes in his book is that the American legal system is completely out of sync with the reality of what is happening inside the United States, and around the world.
For years futurists such as Alvin Toffler and John Naisbitt have lectured the rest of us that the end of the industrial age also means the end of "mass production" and "mass labor." What they never mention is what "the masses" should do after they become redundant.
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