The Great Republic

An interview with Long Wave master, David Knox Barker:

Q: The book chapter with the most frightening implications was the one entitled, “A Redistributive World Empire.” Please tell us more about it and what are the chances that the U.S. enters into this type of political system in the years ahead?

Barker: I picked up that term from, Redistributive World Empire, from Immanuel Wallerstein. There’s an interesting group called World Systems Analysis that studies the advance of civilizations, cultures, etc. Wallerstein has said that in the past he has said that any world economy has ultimately evolved into a redistributive world empire. Rome is the classic example of this type of empire, where the bread and circuses were required to pacify the masses and the Roman Senate was completely corrupt and of course the Caesars became corrupt and ultimately Rome collapsed. What’s interesting is that Wallerstein’s work has always seen that progression from a world economy to what he calls a redistributive world empire. This time around, however, he’s proposing that each long wave is a kind of birth pang of global socialism. Incidentally, Wallerstein has very left-leaning socialist inclinations. He believes that instead of going toward a redistributive world empire we’re going to go toward global socialism. Of course if you look at what has happened in the last year and the way we responded to the global financial crisis, you have to say, “Oh my goodness, Wallerstein may be right after all.” But if you look closer, what really has transpired is what looks more like a Redistributive World Empire where the middle class is taxed really for the interest of an elite class of political and business managers. I guess another term of Redistributive World Empire would be crony state capitalism. And state capitalism isn’t the same as international free market capitalism.

So basically in the book I present three scenarios. Scenario one is what Wallerstein says, namely that each long wave leads to a bigger crisis of capitalism with the birth of global socialism. I don’t think that’s where we’re headed. Then I examine the observation that in the past a crisis in the world economy always produced a redistributive world empire. You’d have to say that’s the most likely outcome where we’re headed based on the evidence. My proposal is the Great Republic, and I truly believe there is a great chance to go in the direction of true international free market capitalism as a result of the crisis that we’re sailing into. I think as you look around and see the austerity in Ireland and see the Germans preaching austerity to the Greeks, it’s important to realize that austerity is not a redistributive world empire. I actually believe that a sovereign debt collapse would be the ultimate mother of invention leading to the necessity of a Great Republic. There’s definitely the potential for such a collapse to produce change towards the Great Republic.

Read the entire interview:
http://financialsense.com/editorials/droke/2010/0415.html

Ian Gordon's DJIA 1000 Prediction

Q&A With IAN GORDON
A Bear's Bear: We're Only At The Beginning of the Collapse
Source: BRIAN MILNER, April 2, 2009

Anyone wondering what a bear's bear sounds like need only spend some time with Ian Gordon, a Vancouver-based investment adviser and market historian whose genial nature seems at odds with his decidedly grim outlook. Basing his views on an interpretation of market cycles going back more than 200 years, the president of Long Wave Analytics has been consistently accurate in his forecasts in recent years. And if he is right now, much worse is yet to come.

Can you explain how your thesis works?
I sort of extended Kondratieff's economic cycle into something far bigger than he had ever intended. [Nikolai Kondratieff was a Soviet economist who concluded in the 1920s that capitalist economies endure recurring booms and busts over long cycles running up to 60 years.] I quickly discovered that it was very easy to recognize exactly where you were in the cycle.

You divide the cycle into the four seasons of the year and say that right now we're at the beginning of a long winter. Why is that?
I consider the seasons to be very appropriate. The present cycle started in '49. The spring started with the bear market ending that year. Spring ended in '66, when that bull market topped in June, with the Dow just under 1,000. ... Spring is the rebirth of the economy, and stocks perform as the economy performs.

And what happens when spring turns to summer?
We have always had an inflation in the summer of the cycle. The reason is that there was always a war. And it was always financed through paper money printing. In the first cycle - and I'm using the U.S. - it was the War of 1812. In the second cycle, it was the U.S. Civil War. In the third, it was the [First] World War and in the fourth cycle, it was the Vietnam War. When I started to write about this in '98, I knew exactly that we were in the autumn bull market [which always follows], and I knew that, given the massive increase in stock prices up to that point in time, we were much closer to the end than the beginning. Which obviously leads us to winter. When the stock market peaks - you can go back to the 1873 stock market peak or 1929 or 2000 - you go into the Kondatriev winter. The winter is really the death of the economy, because debt has to be taken out of the system. And that's what's occurring now. I could anticipate all this simply by looking at all the previous cycles, knowing that the stock market peak would be the indication that we were going into the winter and that the debt bubble would burst.

So why didn't this happen back in 2000 when tech stocks blew up?
Because [then Fed chairman Alan] Greenspan wouldn't let it. He brought interest rates down to 1 per cent [by 2004] and flooded the banking system with money.

Where do we sit now?
We're only really at the beginnings of this massive collapse of the debt structure. Much as the central banks are trying to feed money into the system, the collapse basically takes money out faster than they can put it in.

So all those government efforts to remedy the problems are going to come to naught?
My own feeling is it could be the end of paper money. ... The central banks and the treasuries' response to all this is to just continue to increase the debt. They're trying to get the credit lines open again, but I ask myself: Who's there who can actually take up the loans?

But the markets appear to be rebounding. How do you explain this?
In '29, the [market] peak was on Sept. 3, when the Dow hit 381. The first crash bottomed on Nov. 14, 48 per cent below the point from whence it had begun. Then you got a massive rally [because of government monetary intervention]. Into April, 1930, it recovered [almost] 50 per cent.I think we're very much at that same point again ... where people think that the government is starting to control the problems.

What about the argument that another depression is unlikely, because of all the economic, fiscal and social measures designed to prevent such a nightmare from reoccurring?
I just don't think that those measures are going to work. The U.S. consumer is absolutely tapped out, and that's who you have to depend on for your economy.

So it would be wrong to assume you're advocating a heavy weighting in stocks?
There's a time to be in stocks and there's a time to be in gold. When you're in one, it's because the other doesn't work. In this kind of environment, the only thing that has ever made sense is gold, because people will be so scared of anything else.

Based on your interpretation of Kondratieff theory, when do we see spring again?
The last spring really only started after the [Second World] War, and the war basically stopped the Depression. This time, the United States is in a much more difficult position. Going into the last Depression, it was far and away the world's largest creditor nation. Today, it's the world's largest debtor nation. So its efforts to try to overcome the effects of the Depression are going to be offset somewhat by its ability to borrow.

Getting back to the market, you obviously don't see this as anything more than another bear rally.
Ultimately, the stock market has to reflect the reality of the economy. If we were to emulate 1929-32 in the stock market, that would be an 89-per-cent loss in stock prices. I have a target for the Dow of 1,000 points at the bottom.

Boy, you're going to be a barrel of laughs Tuesday at a Night with the Bears (the Toronto event is sold out).
Having written about this and studied it, I honestly wish it wouldn't happen.

Do you ever depress yourself?
I do. But I hope that I've prepared myself and those that I've advised to basically look after themselves in the best way they can, given what we could see was going to happen.

Source: http://economicedge.blogspot.com/2009/04/q-ian-gordon-bears-bear.html

War Cycles

Mike Alexander's War Cycle
http://radio.weblogs.com/0107127/stories/2002/12/30/mikeAlexandersWarCycle.html

War Cycles: Generational Cycles in Conflict and World Leadership
The American political scientist Quincy Wright was the first to describe the phenomenon of regular cycles in warfare. Although wars themselves are scattered more or less randomly throughout history the incidence of major wars is not. Wright identified clusters of major wars spaced about 50 years apart. A good way to see these cycles is by looking at total fatalities in great power wars over time. Today the great powers are the United States, Britain, France, Germany, Italy, Russia, Japan, China and maybe India. These eight nations possess the largest economies or largest populations, and six of them have nuclear capability. Prior to the Gulf War we would delete India. Before World War I we would delete China and Japan and add the Austrian (Hapsburg) empire. Prior to the mid nineteenth century, we would delete Italy and the United States and replace Germany with Prussia. Prior to the nineteenth century we would add Spain, and before 1715 we would delete Russia and add the Ottoman Empire, Sweden and the Netherlands.

Figure 1. Generational average war deaths per 100,000 population

Wright also advanced the idea that cycles in warfare were related to Kondratiev cycles. Specifically, Kondratiev upwaves show more intense warfare than downwaves. Figure 2 shows that war cycles do indeed line up very well with Kondratiev cycles, peaks in war intensity are associated with Kondratiev peaks. The placement of World War II just 27 years after World War I breaks this neat pattern. Instead of occurring at a K-peak like all the other cycles, World War II occurred at a K-trough.

Wright also identified a second pattern of unusually big wars that occurred every other cycle. These big wars were associated with the rise and fall of great powers. The historian Arnold Toynbee also discussed the existence of one hundred year cycles of war and peace. The leading proponents of this cyclic view of war today are the political scientists George Modelski and William Thompson. Modelski and Thompson stress naval power (and its modern extension, carrier-based airpower) as the key military underpinning of world political leadership. Their choice of successive world leaders: Portugal, the Netherlands, Britain and the United States reflects this bias. All four of these nations projected military power over a world-girdling trading empire through a first rank navy.

The other major determinant of power is economic, specifically the pioneering of new leading sectors of the world economy. Modelski and Thompson argue that the pioneering fifteenth century voyages down the African coast, begun under Portugal's Prince Henry the Navigator, set the stage for Portugal's world leadership period early in the sixteenth century. Similarly, the maritime and financial innovations made by the Dutch in the sixteenth century set the stage for Dutch leadership in the seventeenth century. The pioneering of tobacco cultivation in Virginia and the coming of "Dutch finance" to Britain during the Glorious Revolution set the stage for British leadership in the eighteenth century. Britain won another round of leadership in the nineteenth century by their pioneering of the industrial revolution late in eighteenth century. Finally the spread to America of British ideas of liberal democracy in the eighteenth century and the practice of industrial capitalism on a continental scale in the nineteenth led to American leadership in the twentieth century, which continues to this day.

This idea of a nation's pioneering of a new leading sector (what we have called "new economies") leading directly to subsequent world leadership fits in very well with the correspondence between war cycles and Kondratiev cycles. We have already seen that the development of new economies is closely aligned with the Kondratiev cycle. What is not so clear is why leadership cycles should occur every two Kondratiev cycles (~100 years) when development of new economies and outbursts of great power war occur every Kondratiev cycle (~50 years).

The role of challenger typically is played by a continental power, whose major strength is land-based. Ludwig Dehio has developed a view on war cycles that focuses on these land-based powers. He notes a tendency for peaks in land-based power to occur around the time of low points in sea-based power, and vice versa.