Main Menu

In the late 1990's, I was convinced that there would be a big economic downturn soon - and I was even more convinced of it once I saw the stock market go exponential after October 1998 (it finished that exponential in January 2000).  I suspected it would happen in the early 2000's. 

But then the economic downturn did not happen - the Fed fought the situation like crazy, and succeeded - and I wondered what was going on.  Eventually, in summer 2001, I found out why the Fed fought so hard - the law against recessions. 

Once I found out about the law against recessions, I knew the authorities would push the system as far as they possibly could to the upside - and then it would crash (because keeping an economy going forever is impossible). 

And my proof of that contention is in in the meantime. 

It is impossible to continue to have actual good circumstances after an exponential has completed (due to the internal dynamics of an exponential).  But the authorities have tried to keep the economy going even after the stock market exponential of the late 1990's. 

The current process, involving the late 1990's bubble and the post-bubble environment, actually started with (then) Fed Chairman Greenspan's "irrational exuberance" comment in late 1996.  As it turned out, that was just an attempt by Greenspan to talk the market down - which, when the traders realized after a day or two that Greenspan would not follow through on it with actions, they ignored him and continued to bid the market up (which led directly to the "shareholder value" craze of the late 1990's). 

The reason why Greenspan did not follow through on his words of late 1996 was because of the law against recessions.  He realized after some time that since the traders were not following through on his warning, and so he would have to raise interest rates to the point of making the economy turn down if he had wanted to successfully battle them - but there was a law forbidding recessions, so he could not do that - he (as I found out several years later) decided to just let the stock market bubble run its course and deal with the consequences later, trying to counter the after-effects of the bubble after-the-fact, when the time came, in an effort to keep the economy going even in the wake of a stock market exponential. 

He did that - the central bank succeeded in keeping the economy going in the early 2000's despite the fact that the stock market had come out of (i.e., fallen out of) its exponential in the meantime. 

But the reason why he succeeded was simply because by the end of the 1990's, there was so much momentum of perception among the people (not real momentum in the economy - the Kondratieff wave explains why that could not happen anymore) that the people just kept right on spending and so the economy plowed right on through the stock market downturn of the early 2000's.  And then the stock market came back up and everyone thought things were fine. 

The problem, as noted above, is that it is impossible to have actual good times coming out of a stock market exponential - and we didn't do it this time, either.  That is because the stock market upturn coming out of the early 2000's was a bear market bounce, not a new bull market (granted, a very large bear market bounce, but a bear market bounce nonetheless - see elsewhere on this website).  And the stock market upmove since March 2009 is also definitively a bear market bounce (see elsewhere on this website) - and a much smaller one than the one from 2003-2007, as I would expect at this point in the cycle. 

So, in fact, we have been in a big bear market since early 2000 - just that most people don't know it yet. 

And that is going to come back to bite them big-time pretty soon when the market comes back down again - because, as noted, the move from March 2009 is also just a bear market bounce, and all bear market bounces are ultimately more than completely retraced and then some, meaning that once the market comes back down, it is going to go well below the low of early 2009 (which is the low that confirmed the stock market move from 2003-2007 as a bear market bounce, since the low coming out of that one, in early 2009, was much lower than the low of the early 2000's - so, by definition, we have been in a bear market the entire time, and quite a big bear market, actually). 

The only reason why most people did not know in the early 2000's already that we had entered a bear market was because the Fed managed to succeed in keeping the economy going then - so the first time that people got a hint that we are in a bear market was when the economy went down hard in 2008, and that was a particularly bad downturn precisely because the economy was not allowed to go down in the early 2000's (which meant that the people were taken all the more by surprise in 2008 - and they reacted accordingly).  This next downturn is going to be that much worse (even by conventional bear market standards) precisely because not enough downturns have been allowed to happen along the way. 

It is not possible to avoid a big economic downturn forever - and the longer one tries to hold it off, the worse it will be in the end.  We have had the first round - and now we have a bear market bounce recovery.  What comes out of this bear market bounce is going to be far worse than the downturn we had in 2008 (that is by definition - that is what happens over the course of time after bear market bounces, as they get smaller and smaller - but also because people are so unprepared for what is going to happen next, since so few downturns have happened along the way in modern times to give people some practice).