Page 2 of 2 A nasty blizzard
By Julian Delasantellis
system, one that was not so much new as a hearkening back to a previous time.
Believing that the chaos and misery of The Great Depression directly led to
World War ll, the men who built the capitalist world's postwar economic
architecture were determined not to let it happen again. They watched the world
financial system basically collapse in the early 1930s, to be taken over by the
state in Germany and Italy, to a lesser extent in the United States with
Franklin Delano Roosevelt's New Deal, and they were determined to forever more
regulate the system more stringently so as that, indeed, it would never happen
again.
A core emphasis of the new regulatory regime would be strict
limits as to just how much leverage the financial system could employ in the
drive towards fatter profits.
How quaint, thought the free-market revolutionaries of the past third of a
century. Little by little, their minds always dreaming the blue sky fantasies
of endless freedom without any social consequence, they chipped away at the
postwar financial system regulatory consensus. Final victory must have seemed
in sight on April 28, 2004, the day the five big US investment banks won a
ruling from the Securities and Exchange Commission exempting them from any
limits on how extensively they could leverage, borrow on, their cash positions.
You can't point your finger and upbraid the investment banks for this hubris,
for all the victors of 2004 have either recently bit the dust, like Bear
Stearns and Lehman Brothers, been bought out, like Merrill Lynch, or have
transformed themselves into much more staid and more tightly regulated
commercial banks, like Goldman Sachs.
The boom-to-bust bear markets before the postwar, regulatory era were wild,
violent, extremely volatile events. If what we are seeing now is the first bear
market of the post regulatory era, couldn't it be just as wild and violent?
A two-year plus bear market from 1901 to late 1903 dropped the Dow Jones Index
46%. The Great Panic of 1907 saw stocks lose 48% of their value. Two bear
markets in the period from 1917 to 1922 saw the average drop 41% and 46%, and,
of course, the bear market that started with the October 1929 crash and only
bottomed out in 1932 took 89% off the Dow's value. Stocks did not regain their
pre-crash levels until 1957.
As you can see, pre-regulatory era bear markets were a lot more unpleasant than
what investors are currently accustomed to. If this is the first bear market of
a new post-modern post regulatory era, and, as Karl Marx once said, "history
repeats itself, the first as tragedy, then as farce", then we're all still
waiting for the punch line.
Another case can be made against the contention that all this is just a brief
hiccup the markets will soon recover from. Many observers looked at the
economic dislocations of the mid and late 1970's, saw not the works of OPEC
potentates such as the Shah of Iran, but instead looked to the writings and
theories of a long dead Russian economist, Nikolai Kondratiev.
Most people are familiar with the concept of a business cycle, the sine wave
like pattern representing the oscillations of economic activity from expansion
to contraction, from inflation to unemployment, from boom to bust. In this
theory, the cycles usually last from a few to five to seven years; the economic
expansion that just concluded in the United States commenced around 2002.
Kondratiev postulated a much longer capitalist world economic cycle, which he
called a grand supercycle. These larger patterns were said to be products of
the capitalist world's cycle of technological innovation, application, and,
ultimately, atrophy and stagnation, until a new productivity-enhancing
technological advancement is introduced and accepted.
Grand supercycles were said to be of 45 to 60 years in duration. Add 45 years
to the trough of the Great Depression bear market in 1932 and you come up with
the cycle ending in 1977. No wonder these ideas found so much resonance in the
economic travails of the late 1970s.
With the Ronald Reagan boom, I hadn't heard much Kondratiev talk for years, but
now, with most of the capitalist world in a seemingly frantic race to see who
can melt down the most and fastest, the blogs and Internet are bursting forth
with renewed Kondratiev grand supercycle analysis. Some are even saying that
what we are now seeing is the predicted late 1970s-80s crash, only delayed by
the credit and borrowing binge that accompanied the Reagan/Margaret Thatcher
revolutions.
In an October 10 posting on The Guardian's website, art and culture critic
Jonathan Jones opined that "it's all in Kondratiev, people. Forget Nostradamus.
The world's current predicament was prophesied in the early 1920s by the
Russian economist Nikolai Kondratiev. This Marxist student of western economies
- who was to die in Stalin's purges - claimed to discern 'Long Waves' of growth
and contraction in the capitalist mode of production. Every 50 to 60 years, he
argued, the development of the world market economy seems to hit its buffers.
Kondratiev drew this conclusion from looking at economic figures from the 18th
century to his own time: he predicted a slump was imminent, and the Wall Street
Crash in 1929 proved him right. The wave may have been longer this time but its
down curve seems potentially just as steep."
Jones goes on to contend that it is Marx's teachings that have the most
relevance to current events. I'd be surprised if over in the dank, fetid
basement of John McCain for President campaign headquarters, some bright and
clean shaven recent George Mason University graduate is not right now hard at
work Photoshopping a picture of Jones together with Barack Obama.
For the right-wing financial media, Tuesday's sharp, 10% rise in US stock
indices means this entire analysis is nonsense; obviously, happy times are here
again. Besides everything else, they've probably also never heard of the
investing truism that bull markets produce long and steady up moves, with
violent selloffs; it's vice versa in bear markets.
And as the little boy marvels in the worst snowstorm he's ever seen, in the
warm house a grandparent keeps a wary eye through a window on the child
outside. The elder realizes what the child does not - that lots of people have
perished in conditions like this.
Julian Delasantellis is a management consultant, private investor and
educator in international business in the US state of Washington. He can be
reached at juliandelasantellis@yahoo.com.
(Copyright 2008 Asia Times Online (Holdings) Ltd. All rights reserved. Please
contact us about
sales, syndication and
republishing.)
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
