To present my premise and why I have it, I will give you a brief summary synopsis of what is really going on in the big picture - a few paragraphs - followed by other comments to fill in some important details. I also present most of these details individually at other links on this website, but I present them here together to provide an overview. Please note that there are other links on this website that highlight other details that are not presented here.
My basic premise is that contrary to what Keynesian economists (who are most of the economists in America, including all of the economists in government) think, the Kondratieff wave has not been eliminated. The Keynesian economists think they have eliminated it - their evidence is the successful enforcement of the law against recessions (passed in 1978, first enforced in the wake of the stock market crash of 1987) for so many years until 2008. On the other hand, I actually predicted (to myself - I was not making public predictions at the time) in the summer of 2001 (when I found out about the law against recessions) that there would be a big stock market AND economic downturn sometime between 2007-2010 (which would be the beginning of more problems) and I did so by turning the situation on its head, taking the manipulations of the Keynesians into account relative to the Kondratieff wave. In other words, the Keynesians have not eliminated the Kondratieff wave, they have merely distorted it in the extreme (it can't be eliminated) - and that is why we have the situation that we have today.
Stated another way, from the summer of 2001 onward (more explanation below), I knew that there would be a big economic downturn sometime between 2007-2010 - which the Fed would not be able to stop. We have had that economic downturn. But that downturn was not all that I predicted then (noting again that I was not predicting publicly back then - these were predictions to myself) - because I knew that the big downturn that would happen sometime between 2007-2010 would happen because the Fed was going to have lost control of the economy (that is the only way a big economic downturn can happen if there is literally a law against recessions passed by Congress - which there was - and the Federal Reserve is tasked by that law with preventing recessions from happening). I knew that once the Fed lost control (which it has in the meantime - we are now only in a large bear market bounce that would have happened anyway, explanation below), the stock market would return to trading in a normal way (which the Fed prevented from happening for many years when it successfully prevented deep recessions from happening), which means that the stock market would have an initial big downturn (which happened from October 2007 to March 2009, most people became aware of it when the crash happened in early October 2008, a year after the market had started dropping), followed by a big intermediate upturn (which I knew would, in fact, be a classic big bear market bounce, and it is) that would coincide with a partial recovery in the economy (and that is all now happening), followed by another large downturn, worse than the first one, that would normally, i.e. in the past, be the end of the process, but that I think will go deeper this time (explanation below) because of all the manipulation to the upside for years before (please read on, I do explain myself).
Real estate initially turned down hard during the initial big downturn in the economy. There is not much of a recovery in it during the economic recovery - and since I know this is only a partial economic recovery (see below), I know that real estate will go down a lot more once the next downturn hits with full force. I think that downturn will be bad enough that it will cause real estate sales to go way down again, probably much lower than last time - and vehicle sales will go way down, as well, probably down more than they did in the last downturn. Sales of many other items probably will go down a lot, as well.
Why is this? Because that second downturn is normally worse than the first one anyway - and I think this time, it will be worse because of all the pushing to the upside that has happened in the meantime. Simply put, I think that once the second downturn hits and people realize that the overall downturn is real after all, spending on all but personal essentials will stop - people will be conserving any cash they can, especially since most people don't have much cash to begin with - and in an economy that is 2/3 dependent on consumer spending, that will have a big impact.
I think that given what is happening (and also taking into account what I know, see below), just about everyone who does not see what is coming (in most cases because they do not want to see what is coming) is going to be hit hard by what is coming. In fact, among the people I know personally, only the immigrants (people who have experience with very negative experiences in the past) see what is going on (none of the born-and-bred Americans do) - and I am the only one of the immigrants writing about it, probably because most of the rest of them are long-since retired. Most Americans are just choosing to look at the bright side (at least those who are at all in a position to do so, i.e., unlike the people who are running out of unemployment insurance, for example) and it is going to be a big, big problem for them. That is because what is happening in the country and around the world is part of a larger process (and I anticipated most of it for that reason) that has been building for years and will not go away and will continue to build (and it doesn't have much further to go) until a critical point is reached and anyone who is not prepared for that critical point when it happens will be hit hard. My sense of it is that the vast majority of Americans will be hit hard. Please read on, I come to a final conclusion about this at the bottom of this text on the basis of everything else that I note below. Trying to think positive to try to avoid what is going on financially and economically is simply not going to cut it in the current environment - acknowledging what is going on, realizing its implications, and preparing for what will come is the only realistic, effective way of dealing with it, i.e., of approaching it in a way that will leave one coming out ahead in the end. The vast majority of Americans will not do that.
We are having a classic big bear market bounce - it started in early March 2009 with a classic very sharp and big initial rally (initial rallies in new bull markets are very sharp, but not very big - in other words, it is the very lack of bigness of the initial move in a new bull market that fools most people with regard to it being a new bull market and the very bigness of the initial move up in a bear market bounce that fools most people into thinking it is a new bull market), followed by a flattening out of the bear market bounce that then goes on for quite some time (new bull markets do not flatten out for nearly that long at a stretch). Once the initial big surge up is done, a classic, typical bear market bounce goes on for the rest of the time flat, or nearly flat with a slight upward bias (which, if that happens, especially keeps bullish hopes very alive), and that, the nearly flat kind, is what is happening in our case, and that will just continue (flat or nearly flat) until the bear market bounce has finally exhausted itself. When it has finally exhausted itself, the new bear market leg will start, one that is bigger than the initial one that most people noticed in the fall of 2008 (that is to say, the one that happened from October 2007 until March 2009) - and this time, the move will take us below 6,500 in the Dow (which was the previous low, in early 2009). The previous low before that was about 7,500 in the early 2000's (which was actually a double bottom in 2002 and 2003). Bear markets consist of a series of lower lows - that is what makes them bear markets. We have been in a bear market since 2000 (went into it coming out of the stock market exponential of the late 1990's) - and I expect the next low to happen at about Dow 5,500, or even below. I just can't tell you exactly when that will happen.
One of the main reasons why I can't tell you exactly when it will happen is because of the law against recessions - which has caused the Fed in the last couple of years to try to do anything it can (possibly even at all think of) to try to keep the economy going. The Fed keeping the economy going has actually been happening since the crash of 1987 already - and that has distorted the stock market waves in the extreme in the meantime (but not prevented the bear market - there was no way the Fed could do that).
In fact, it was because of finding out about the law against recessions in the summer of 2001 that I immediately concluded that if the authorities, on the basis of that, managed to save the economy in the early 2000's, which they did, there would be no economic downturn before 2007 because there could not be, the next big down cycle was not due until sometime in 2007-2010 and the authorities would certainly successfully fight any attempt at a downturn by the economy in the meantime. But I also knew that if the authorities managed to save the economy in the early 2000's, that would mean that the imbalances in the economy would build up by 2007-2010 to such an extent that a big economic as well as financial downturn was just about guaranteed at that time. That is what happened.
Here are more details -
There are two kinds of economists in the Western world - Keynesian and Austrian. Almost exclusively, what is taught in American universities is Keynesianism - and virtually all the economists at the Federal Reserve, America's central bank, are Keynesians. In fact, pretty much every economist in the Western world is a Keynesian these days and the Austrian economists lead a very fringe existence.
The Keynesians are called that because the crux of their theory came from John Maynard Keynes, a British economist of the early 20th century. The Austrians are called that because their theory came from some Austrian economists who were active in Austria pre-W.W.II, but were Jews, and were smart enough (like Einstein, a Jew, in Germany) to get out of Austria before it was annexed by Hitler. They went to America and that is where they came to be known as "Austrian economists" (because to the Americans, it was more important that they were from Austria than that they were Jews). Their version of economics has been called Austrian economics ever since - but the reality is that it took them a while to get established at all in America (in other words, to get to the point where they got their academic qualifications accepted here and were allowed to teach at university) and by the time that happened (and, probably, even long before), the Keynesians were so well-entrenched in America that the Austrians have never really been able to compete against them for notice. Consequently, they have always been very much on the fringe (so far - I think that will change soon when their big-picture predictions come true in a big way and the modern Keynesians are proven dead-wrong, in the big picture, by actual circumstances).
The most basic lesson associated with Austrian economics is that economies go in cycles - and it is a fact (please see below for elaboration), but not one that modern Keynesian economists want to acknowledge. Modern Keynesians just want to avoid recessions at all costs. And that is what they have been doing ever since they could actually start doing so in the 1980's. The problem is that the cycles don't go away in the process - they just get postponed (explanation below). So, when the Keynesian economists refused to let the economy go down after the 1987 stock market crash and throughout the 1990's, the system compensated in the only way it could - by letting the stock market go sky-high. That was viewed by most people as a very good thing - but it was actually a bad thing (brief explanation next). Since the authorities kept supporting the economy, the pushing eventually resulted in the stock market going exponential - in the late 1990's, as it happened. Exponentials ALWAYS end badly (NO exceptions) - and so I expected both the stock market and the economy to go down hard in the early 2000's. The stock market did (although most people can probably hardly remember that anymore) - but the economy did not. It was when I was in the process of trying to find out, in the summer of 2001, why the Federal Reserve was fighting the economic downturn so hard that it was doing so even in the wake of a big stock market exponential (the one that happened in the late 1990's), that I found out about the law against recessions (which is essentially modern Keynesianism enshrined in law). As soon as I found out about that law, I knew immediately (on the basis of what I had already learned before) that if the Fed saved the economy in the early 2000's - which it did - there would just about guaranteed be a BIG economic downturn along with a big stock market downturn sometime between 2007-2010. As it turned out, that downturn came just about in the middle of my anticipated time-frame (I can indeed be very confident in my big-picture predictions now that I know about the law against recessions!).
One basic concept, that is actually playing itself out in reality in a very obvious way lately, that the Keynesians just do not want to accept - but which is an inherent part of the Austrian economics theory, but is not part of the Keynesian theory at all (Keynes never addressed it - his focus was on avoiding and minimizing recessions, which the British economy was plagued by, just as the American economy was, the American economy being the closest economy to England in all the world, much closer to England than those of continental Europe, including Austria) - is that as economic upturns mature over the course of decades, they lose momentum in real terms over the later half of the cycle, they lose dynamism, they therefore have lower real economic growth over the course of time during the later part of the cycle. The Keynesians don't like that one bit - because it implies that recessions are inevitable from time to time - but the Austrians take it in stride and simply note that recessions are actually good for the economy in the long run (brief explanation in a moment!) and that the recessions should be allowed to run their course as quickly as possible and that the society and the system will be better off for it in the long run if one does that.
But the Keynesians think differently - their idea is to prevent recessions at all costs. A recession involves negative economic growth and one does not want that, of course not (from their point of view)!
The problem is that capitalist economies naturally go through cycles over the course of long periods of time - years and decades - and that was proven by a man outside of the Western system, Nikolia Kondratieff of Russia, who actually found it out in the 1930's when he was tasked by Stalin with proving that the Western economy would not come out of the Great Depression and that communism would emerge triumphant in the end. Kondratieff studied the Western system carefully - and came to the opposite conclusion, at least with regard to the West, namely, that the West would recover from the Great Depression and would, in fact, have a new extended period of growth. The story is that Stalin hated that conclusion so much that Kondratieff was exiled off to Siberia, where Kondratieff died - but it did not change the fact that Kondratieff was right.
The problem for us in current times is that Kondratieff did, indeed, prove that Western economies go in natural cycles over the long course of time - both up and down. At the time of Kondratieff, those cycles were working in our favor - because we were at the lows of the cycle at the time. Now, we are at the opposite end - at the highs.
But there is another factor - a complication that Kondratieff could never have foreseen. The law against recessions, passed by Congress in 1978 (and called Humphrey-Hawkins). (The law actually expired in 2000 - but the people in the system at that time decided that they liked the results of the enforcement of the law up to that time so much that they decided to continue to enforce it as if it had never expired - and that is what they have done. The problem is that a capitalist economy does lose steam over the decades of an upturn - and we are facing the consequences of that now, making the law against recessions ever-harder to enforce, and which will soon make it impossible to enforce at all.)
The law against recessions could not be enforced right away when it was passed - because inflation took off at about the time the law was passed, making it necessary to deal with that first (I deal with what was going on, and the reasons why, on this website, in particular at the My model link - but I won't go into that here) - and once the economy started growing again in the early 1980's, there was no need to enforce the law against recessions for a while. But then the stock market crash of 1987 hit - and it was possible to enforce the law against recessions in the meantime (not that any Keynesian was aware of this!) because the economy had transitioned in the meantime, in the late 1970's/early 1980's, from the stagnation phase of the Kondratieff wave (the 1970's in our case) to the plateau phase of the Kondratieff wave.
The key difference between the growth phase of the Kondratieff wave, which happened up until the end of the 1960's in our case, and the plateau phase is that during the growth phase, new money wants to go primarily into consumer prices - thereby generating consumer price inflation - whereas during the plateau phase, new money wants to go primarily into the stock market - thereby inflating the stock market. So when the authorities supported the economy in the context of the law against recessions from the crash of 1987 onward, the new money went mostly into the stock market and so the stock market went to heights over subsequent years that could never have even possibly been reached without the new money that the Fed was pumping into the system. In fact, the result was that the plateau phase of the Kondratieff wave was extended for about 13 years beyond where I think it should have stopped if the crash of 1987 had been allowed to run its course naturally.
But the plateau phase of the Kondratieff wave did end 13 years later, at the end of 1999 going into 2000, That is because the transition from the plateau phase to the depression phase of the Kondratieff wave is characterized by three things. One is a stock market that simply can't keep going up anymore, it can't hold itself up anymore, and therefore it comes back down - and that was taken to an extreme this time because the stock market actually went exponential in the late 1990's (the stock market does not make it into an exponential during a normal Kondratieff wave). Another is that commodity prices turn around again, which they did at that time. Also, the plateau phase is characterized by disinflation (decreasing consumer price inflation) after the inflation problems of the stagnation phase - and that disinflation then keeps going down until it reaches a point where it is actually ready to go below zero, and when it does go below zero, that is deflation, which then gets worse over the course of time, and a deflationary depression ensues (helped along by a declining stock market, as well). In our case, the Fed was pushing so hard that the initial deflation scare did not happen until 2003 (and the Fed did, with all its money-pumping, prevent deflation from taking hold then) - and the Fed continues to pump like crazy, but the inflation index continues to fall, despite the best efforts of the Fed, with the index being consistently "below the comfort zone" of the Fed in recent times (the Fed itself has said so) and it is still going down, by the Fed's own admission. In other words, the trend toward deflation is an inexorable trend that the Fed will be unable to stop (I think the ultimate evidence for that will be in soon) - and when it finally does roll over into outright across-the-board deflation despite all the efforts of the Fed, I think a massive deflationary depression is going to take hold to compensate for all the efforts to avoid deflation along the way (in other words, in the end, the depression phase of the Kondratieff wave will not be denied - and the depression will be that much deeper because it was postponed for so long). That will be accompanied at least approximately in time (in the big picture) by a strongly declining stock market, as described above. I think that somewhere along the way, the Fed will lose all credibility (I have actually been predicting for years already that the Fed would eventually lose all credibility).
Why won't what happens be hyperinflation, like some people are fearing (because of all the Fed money-pumping)? Because the modern way of putting new money into the system is through the banks - i.e., it is borrowed money. It has to be paid back. As long as the economy is functioning, that works - but eventually (and we are at that point now in the big picture), the economy weakens enough that a sufficient number of people can't repay their loans that it becomes a really significant, and then really major, drag on the economy, and when that happens, a credit crunch develops. (When a loan default happens in an economy that is being pumped full of money through the banks, that is a decrease in the money supply, not an increase. The money supply can only increase in such a situation if the Fed puts even more money into the banks and those banks actually lend the money out. For a while, that was happening - but not anymore, we are past the point in the process where enough of that is happening, and the actual money supply in the economy has been going down for a couple of years already.) As the credit crunch deepens (and the Fed itself says the credit crunch continues to deepen), the economy takes a bigger and bigger hit over the course of time because on the one hand, people have a much harder time getting loans and in a society whose economy is dependent on getting loans to function, that is a big problem, and also as businesses can't get loans like they used to, employment suffers, which makes it harder and harder to pay off the loans that are out there already, which makes the credit crunch that much worse because money is not coming back into the lending institutions to be lent out again. That is happening now. And since the credit crunch this time developed in conjunction with the decline of the housing market, the credit crunch is particularly intractable and will, most assuredly, not go away. In fact, when the next downturn gets going, the credit crunch is going to get that much worse, and there will be nothing the Fed can do about it. When that point is reached, the housing market is going to take another big hit, house prices will tumble a lot more, and the consequences will very much play themselves out in the economy.
What is the Fed doing about the situation now? Trying to revive the housing market by keeping interest rates on mortgages low. Why is that not working (even the Fed admits it is not working)? Because if there is simply not enough demand for a product, period, it does not matter what the price is, people will not come in sufficient numbers. That is what is happening - but modern Keynesians have never been known for thinking in anything other than very conventional terms and that is why they can't figure it out. The simple reality is that the real estate market ran out of buyers - at least anywhere near enough of them to keep the real estate market going at the former level. And so it does not matter what the price, in this case the cost of the monthly payment, is - enough people will simply not come. What makes it worse is that for a normal consumer product, a consumer may eventually be enticed to buy more of them, or at least need more than one of them over the course of time because of such issues as wear and tear - but a consumer never needs more than one home and homes tend to last a very long time, as well, so once the market runs out of bodies, one has simply run out of customers, period. There is nothing anyone can do about that now - and that is especially true because the sustainable economic growth is so low now (because we are so very late in the economic cycle) and so the employment situation looks very bad (it will remain that way) and so even immigration, which has helped solve the housing problem in the past, will not be able to help solve it this time.
So the housing market will just more-or-less limp along - with some increases in sales now that the economy is somewhat back up and people have more confidence (housing sales have come way down during the downturn, but there are still buyers out there) - until the next big downturn hits and then the housing market is going to take a huge additional hit (because that many more people will not be able to afford homes anymore). In an economy that is as dependent on housing as this one is (because more than 50% of all consumers live in a home that is not rented), that is going to be a big problem.
So how does what has happened so far in general fit in with this?
It is simple (if one knows what is going on) - as I noted above, ALL exponentials end badly (NO exceptions). But the Fed was successful in keeping the economy going in the early 2000's even in the wake of the stock market exponential of the late 1990's (which actually ended in early 2000). So the economy continued until the big downturn of 2008, which I predicted in the summer of 2001 already, as soon as I found out about the law against recessions. But, as noted above, the downturn of 2008 happened because the Fed lost control of the economy - which means that the stock market and the economy will now be able to play themselves out normally again. But the stock market was driven so high before we got to that point that any downturn will be starting from a very high level and has that much further to fall than it otherwise would have. So any downturn that happens this time will be BIG - and the downturn that happens next will be inherently even bigger (explanation below) than the one that happened in 2008. That will be the exponential's revenge for the fact that it was not allowed to play itself out fully in the early 2000's already.
Why do I come to this conclusion? Why will this happen?
This is where some details of the Kondratieff wave come in, i.e., how the phases of it actually develop and why the transitions from one phase to the next happen. The problem is that the phases ultimately can't be denied - for the following reason. The reason why the stagnation phase develops is because imbalances, primarily in the form of debt (and, in particular, eventual very significantly increasing levels of defaults), build up during the growth phase and have to be compensated for if economic growth is going to continue. So a stagnation phase develops in which some of the debt is eliminated to provide a better baseline for further growth. But not enough imbalances have built up during the growth phase to result in a complete reset - so the next phase is only a stagnation phase where some of the imbalances get reset, but not all of them. When that process has run its course, the plateau phase of the Kondratieff wave kicks in - during which economic growth is consistently positive again, albeit declining over the course of time during the later part of the plateau phase, and is lower than during the growth phase, and more imbalances develop. In fact, probably more imbalances develop during the plateau phase than during the growth phase because although economic growth is lower, the stock market goes higher than it did, in percentage terms, during the growth phase and so people feel better than they did during the growth phase, even though the economic growth is actually lower, and so the people are probably that much more inclined to introduce imbalances into the system (eventually including also a lot more debt defaults). The net result is that when that process has gone as far as it can, the plateau phase ends and the depression phase starts and that is when the big clean-out of imbalances happens before the growth phase of the next Kondratieff wave can kick in.
The process of the plateau phase has been taken to an extreme this time because the law against recessions started being enforced when the plateau phase was underway (and that, by the way, is probably the only phase in which starting the enforcement of the law against recessions would have worked anyway, since to be able to enforce a law against recessions, at least initially and for a while afterward, it is absolutely necessary to have conditions in which the stock market can go up a lot - and in terms of the Kondratieff wave, that can only happen during the plateau phase anyway). This time, the stock market was driven all the way into an exponential during the plateau phase - and then the plateau phase could not be maintained anymore and so we did, indeed, go into the depression phase in 2000. But the central bank even prevented that from playing itself out fully at the time - and so the imbalances have continued to build up in the meantime as if the plateau phase had never ended (among other things, we are now drowning in debt) and so now, when the next downturn hits, there is going to be (will have to be) a HUGE flush of imbalances out of the system before the economy can be reset to a healthy state again. I think that huge flush of imbalances is going to be so dramatic, and its consequences so severe, that the economy is going to be really, really bad. That is how the exponential will get its revenge - because ALL exponentials end badly (NO exceptions). This exponential was not allowed to play itself out when it was supposed to - in the early 2000's - and the imbalances have continued to build up in the meantime as a result, which means that when the thing finally goes down for real, there will be that much more to clear out of the system.
When that happens, I think there basically will be little, or even no, real estate market anymore - because the unemployment rate will be very high (much higher than it is now) and most people who still have a home will be very unlikely to be willing to take on the risk of moving to another one (never mind the issue of being able to sell the one they are in!). Moreover, the financial system will be so screwed up that it is unlikely that there will be much of a mortgage market anymore, anyway.
Why am I so convinced of this? Because, among other things, I predicted (to myself, I was not making predictions publicly yet), once I realized that the stock market was going exponential into the late 1990's, that the market would top out around the beginning of 2000 (which it did - just a few weeks later than I expected it to, and there is an explanation for that, and it is not complicated, but I won't go into it here, I cover it at the My model link, I do not want to veer from the main point of this introduction here) and that conditions in the world would start getting worse from then on and would continue to do so for many years to come.
Things started to get worse in 2000 already - but then came 9/11 and things have been going steadily downhill ever since - no surprise to me. There was another big acceleration when the Fed finally lost control in 2008 and both the stock market and the economy went down hard - and there will continue to be additional accelerations downward for years to come. The next big one is not far off anymore - but I can't tell you exactly when it will happen because the law against recessions is still being enforced. Yes, the Fed lost control in 2008 (and I think that loss of control will be permanent - for now, the Fed just thinks it is in control yet). But once the stock market came back up out of the low in early 2009, and especially once the traders got the Dow back above 10,000 again, their law against recessions mentality kicked in again and they have been fighting like crazy ever since to try to keep the stock market up in an effort to do their part to help Fed Chairman Bernanke enforce the law against recessions.
So the stock market will stay up - and, probably, even have a slight upward bias - until the traders get spooked. The traders WILL get spooked sooner or later because world circumstances will continue to worsen - that ALWAYS happens in a big bear market and we are in a VERY MAJOR bear market since 2000 - and when the traders get spooked, they will probably eventually switch in more-or-less a split second from trying to support the law against recessions to trying to protect their own profits, which means they will start selling in a panic and that will cause the stock market to go WAY DOWN very quickly (and this time, it will stay down, unlike last time). When that happens, the American people will lose faith very quickly and will stop spending, they will be trying to hoard any cash that comes their way. I will not be surprised if during the coming stock market sell-off, the Dow goes down thousands of points very quickly (but not necessarily in just a few minutes).
By the way, to clear up one thing that is the reason why I think things will work the way I describe in the above paragraph - contrary to popular belief, the causality is not "The stock market goes down and then things get bad - so all we have to do is keep the stock market up and everything will be fine." The causality is the other way around. In other words, stock markets do not go down by themselves - they are driven down by traders, who are people. As long as those people are optimistic, they will continue to drive the stock market up. But we are in a major bear market is terms of world events since 2000 (and keeping the stock market up won't change that, most people in the world are not stock traders, so they do have an influence on world events, but do not have an influence on the stock market) and, as noted above, world events will continue to get worse for years to come (we are in a long-term bear market since 2000 in terms of world events; there are reasons why I know that that I won't go into here), so when world events finally get bad enough that even the Wall Street traders can't stomach it anymore, the Wall Street traders are going to sell in a panic and that will be the beginning of the really big downturn. World events will guarantee that basically no one will want to buy into the stock market at that point to drive it back up.
That time is coming in the not-too-distant future - and then the stock market exponential of the late 1990's will have its full revenge (especially in the context of people, including Wall Street traders, who have been made extremely overoptimistic over the course of time by so many years of the successful enforcement of the law against recessions).
Why was the law against recessions passed in the first place? I think it was because the baby boomers were the first generation in American history to go through their entire formative years (in the 1960's) without experiencing a single significant economic downturn (the 1960's were the longest economic boom in American history up to that time, by a year or two - which were the crucial year or two in terms of the formative years of the baby boomers). So the baby boomers came to expect plenty and economic good times as their birthright - and so when the economic downturn of the 1970's hit, it hit them like a bombshell, especially when it lasted so long. So in the end, a law was passed banning recessions and tasking the Federal Reserve with making sure one would not happen again. Interestingly enough, the law was set to expire in the year 2000 (i.e., it was supposed to expire before I even found out about it) - and it did expire then, but the authorities in 2000 decided to keep enforcing it and that is why we are in the pickle that we are in now. It is as if the politicians of the 1970's inherently, intuitively knew that after 2000, the law would effectively be impossible to enforce (and, in fact, it was only successfully enforced in the early 2000's yet - in the time between then and 2007, there was no big need to intervene actively, and after that, the intervention did not work anyway, per my prediction) - or, more likely (I think MUCH more likely), the politicians of the 1970's only cared about themselves and knew that they would all be retired by 2000 and so they did not care what happened after that.
But the Keynesian economists very much did care - and they call what happened in the last 25 years or so until the fall of 2008 the Great Moderation - the time when recessions were finally banished from the system (except for very mild ones during extreme times, such as the oil wars of the early 1990's and early 2000's). They were caught by surprise by the recession in 2008 - but their attitude is "just get us past that and get things back to the way they were before and we will be fine." The problem with that is that it simply won't work - the Keynesians don't believe recessions should happen - so they don't believe in the Kondratieff wave and they believe that the time of the Great Moderation proves that the Kondratieff wave is wrong or at least irrelevant in modern times.
But the Kondratieff wave does work - I used it to predict the downturn of 2008, including the severity of it, several years in advance. All one has to do is take the manipulations of the Keynesians into account relative to the Kondratieff wave. The Kondratieff wave can't be eliminated - it can only be postponed. And that is why I was able to make the prediction that I did. But the Keynesians don't believe in the Kondratieff wave in the first place - so they are absolutely guaranteed to get things wrong in the future. They have been getting things very wrong lately (but I accurately predicted, using my model, everything that has happened lately that the Keynesians did not like, although not the exact timing of all those things) and they will continue to get things more and more wrong in the future.
The Keynesians are now pushing very hard to get things back to the way things were before - and that is the main reason why (as of the end of 2010) the bear market bounce has already lasted nearly a year longer than it probably, nominally, should have (per a pattern in the stock market that formed at the end of 2009 and ended in mid-January 2010). But the problem is that we are still just in a bear market bounce - (and) the Keynesians can do nothing to change that. They can extend the bear market bounce - and make it go a little higher in the process, thus keeping bullish hopes alive, and that is exactly what they have accomplished - but ultimately that will just result in a bigger downturn that will wipe out that many more people and make the Keynesians look that much more like total idiots when the end finally comes (not unlike what happened to the professors of Marxism in the Eastern Bloc in 1989-1991, when they all saw their entire theory effectively go totally up in smoke fairly quickly in the face of hard, cold reality, i.e., the collapse of the Soviet Bloc).
The current stock market up-move has the characteristics of a bear market bounce and not the characteristics of a bull market (the differences are easy to see if one knows what to look for - see the link "Bull market vs. bear market bounce" in the third section of links on this website) - and there is nothing that the Fed can do to change the fact that the current stock market pattern is just a bear market bounce (see also the link "Why the stock market upturn is a bear market bounce" in the third section of links on this website). They can only make the bear market bounce last longer - and that is what they are doing.
The problem for the population is that the very nature of a bear market bounce is such that as the top approaches and is reached, the majority of people think that the previous good times (which, in our case, ended in the fall of 2008) are back again or, at least, are maybe, hopefully, probably coming back again - and, apparently (that is to say, as far as I can tell), even the economists at the Fed, including the Fed chairman himself, who are all Keynesians and therefore totally conventional thinkers when it comes to the basics, also believe that, or at least believe that the previous good times are actually attainable again. So they are pushing very hard to make it happen.
The problem is that it quite literally can't happen - and so everyone who is hoping for it is just going to experience major disappointment in the end, including all the people who voted for "throw the bums out" in the presidential election last time, bringing in Obama, and especially the hundreds of thousands of people who were on the Washington Mall on inauguration day to see Obama be inaugurated because they just had to see the new president be sworn in, the one who wrote the book "The Audacity of Hope," a sentiment which is exactly what they wanted to feel at that time in the hope that things would get better. Some Obama supporters have publicly made known in the meantime that they are well aware that their hopes have been dashed so far - and those hopes will continue to be dashed, there is no way we can get back to the way things were before (and my information above explains why).
As for Obama's book "The Audacity of Hope," I already knew what was going on in the big picture at the time it was being written and I took the book, when it came out, as a classic example of the extreme over-optimism that was rampant in America from 2005-2007 (extreme over-optimism is always present during the first major bear market bounce in a new major bear market, a bear market bounce which in our case happened from spring 2003 until October 2007, although most people did not become aware of the end of it until the crash a year later in October 2008) - and I took the fact that Obama chose to do the book when he did it as an actual expression of the extreme over-optimism of the time on the part of a man who is trained as a lawyer and therefore is guaranteed not to have the slightest clue about the sorts of things that I am talking about here, so he was, in effect, destined and doomed to reflect the times that he was living in at the time.
And when I heard about the book being released, I thought the title itself really, truly reflected the over-optimism of the time (and I did not even bother to read the book - I did not have to) - and I knew it was a perfect opposite mirror of the big downturn that was about to befall the nation. Sure enough, not long after (The Audacity of Hope was released in the late fall of 2006), the big downturn of the fall of 2008 happened - which was the exact opposite of what people who had bought the book were looking for (and, for that matter, the exact opposite of what Obama himself - the author of the book - was looking for).
If one is wishing for something that is simply not going to happen, one will be disappointed. That has happened to me too many times in the past - and so I decided to be hard-nose realistic at least 10 years ago already. As a result, I have been making quite accurate predictions (to myself - I was not making them publicly until I put up this website) for more than 10 years, both up and down - and my accuracy rate (both up and down) since I found out about the law against recessions in the summer of 2001 has been probably about 95-98% (I have not measured it exactly). I know what I am talking about - but most people (especially the baby boomers in America, for reasons cited above) do not want to hear it because they just want things to go back to the way they were before (especially the baby boomers so they can experience unprecedented good times again - just like they were doing during their formative years in the 1960's). It won't happen - the good times won't come back again - and that is why I think the vast majority of Americans are going to be in a world of hurt by a few years from now at the very latest (probably much sooner), because they just do not want to know about the coming times and therefore are not going to prepare for them and are, therefore, going to be nailed by the consequences of their lack of preparation.
I am trying to prevent people from experiencing that - but I do not think I am going to have much luck with most Americans because they are just not oriented toward understanding what is going on (quite the opposite, in fact).
And, by the way, a note about the national debt and deficit. We have been in a bear market since 2000 - and since then, increasingly large record annual federal deficits over the course of time (but not every year) have been needed to keep us above zero economic growth. We are now to the point where it is taking annual deficits of over $1 trillion/year to do so - and that is simply not sustainable. Our national debt is growing at an alarming rate in the meantime (and has been doing so for quite some time already) - and it is also not reversible in the meantime anymore (see this website for the reasons why if you want to know the details - the link is at the bottom of the upper third of the list of links on the Main Menu). So we are digging ourselves into a very deep hole very quickly and I do not think we can get ourselves out of it anymore - especially since economic growth this late in the cycle just won't support it. So at some point the system is going to tip to more negativity than positivity (the negativity is already growing at a faster rate than the positivity and it has been doing so for some time) - and then it will be all over for most people, the system will tip in the negative direction and then things will cascade and snowball down from there. It is only a matter of time (and I do not think a lot of time anymore).
By the way, to emphasize one other thing - there are a number of financial advisors out there now who are insisting that America is going to have a hyperinflation because of all the money that the Fed is pumping into the system. I have links on this website that deal with this, but to point it out more immediately here, if the money were being provided as cash, directly to the people (i.e., in the form of cash directly from the government or through a paycheck), that would be true - but it isn't (in fact, pay for the average worker is quite stagnant these days), the money is (almost entirely) being provided through the banks, and that is borrowed money. ALL borrowed money has to be paid back - and in a slow economy, that involves loan defaults. In a system where the new money comes through the banks and there is a credit crunch and loans are being defaulted on, that is a reduction in the money supply, not an increase. So as long as a credit crunch is in place and loans are being defaulted on, a deflation is going on, not an inflation, despite the best efforts of the Fed to prevent a deflation from taking hold by putting more money into the banks (in an effort to put it into the system).
What the banks are actually doing with this new money is instead of loaning it out to private customers, who are on average regarded as too high a credit risk by the banks these days, they are loaning it out to the federal government by buying Treasury securities on a massive scale. Treasury securities are regarded as "zero risk," due to the "full faith and credit of the U.S. government," for a long time already. The Treasury securities pay less interest than a bank loan would - but they are regarded as more safe because the banks assume that the federal government won't default. In other words, the banks are funding the federal government's huge deficits with the new money these days - the money is being used to fund the huge deficits instead of being used to fund the economy. When the economy goes down more and tax revenues plunge and the government can't pay its bills anymore and the deficits skyrocket even (much) more, the banks are going to find out just how safe those "investments" really are - and that is going to put the banks in a world of hurt at that time, as well. The situation won't be pretty - in part because that will then just about completely starve the economy of money (because most money is not cash these days, anyway, and never will be - the money gets transferred around using debit cards or other electronic transfers, and started as a loan from a bank that was also provided to the customer in electronic form). In other words, even the inflationists are going to get the opposite of what they are expecting.
To put this in perspective in terms of the credit crunch, as I note elsewhere on this website as well, from 2005-2007, when there was a huge boom going on that was being fueled by borrowed money (credit), the Federal Reserve was quite often asking, even begging and pleading with, the bankers to cut back on their lending to bring it back down to more normal levels - and the bankers refused, saying the business was just too good to pass up. The Fed was utterly unsuccessful in convincing the bankers to slow down their lending. Then the credit crunch hit in 2007 - and from then on, the bankers have been lending less than the Fed wants them to. Ever since then, the Fed has been begging and pleading with the bankers to increase their lending to support the economy more - and the bankers refuse, saying the risk (in too many cases) is just too high. (What the bankers are actually saying in many cases is that not enough creditworthy people are actually walking in the door to get a loan. I think that is, in part, because many people who are actually still creditworthy in the current environment, i.e., can still borrow under the new tighter lending standards and/or have not had their credit ratings trashed by circumstances, are being cautious and not borrowing more money when circumstances look so iffy. And there are still far too many people who have too low a credit score, in most cases far too low a credit score, including many who lost it in the downturn and in most of the cases of those who lost it in the downturn, they got their credit score trashed.) The Fed has, for the most part, been utterly unsuccessful in convincing the bankers to increase their lending. In other words, ultimately, the cycles won't be denied - the Fed can push all it wants to try to smooth things out and to try to keep the economy going - ultimately, all such efforts will fail, ultimately, any big effort to prop things up in an effort to keep things going will result in a super-boom that is then followed by a bust. We are only part-way through that bust now.
My premise / why I have it
To present my premise and why I have it, I will give you a brief summary synopsis of what is really going on in the big picture - a few paragraphs - followed by other comments to fill in some important details. I also present most of these details individually at other links on this website, but I present them here together to provide an overview. Please note that there are other links on this website that highlight other details that are not presented here.