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The Rural Voice, 1982-08, Page 12A look at the Kondratieff Wave Looking back to see what's ahead by John DePutter Most economists analyze short term data to forecast the future. But sometimes it is wiser to look back many, many years, because after all, history does repeat itself. One economist who decided to look far into the past in order to predict the future was Nikolai Kondratieff, a Russian economist. Kondratieff found that bus- iness cycles move in waves lasting 48 to 60 years from peak to peak. Although Kondratieff is long since dead, he has many followers who believe that the business cycle has peaked in North America, and that we are entering (or are about to enter) a major down- swing. Kondratieff's work showed that cap- italistic economies fluctuate in waves which are self-correcting. These waves have lasted for centuries in some civiliza- tions but only 4 have been observed in the relatively new North American economy. There are certain landmarks in each cycle. At the beginning of each cycle, the There are a number of barometers used by economists to measure the cycle. One barometer is wholesale prices. Others are interest rates, industrial production, prices and wages. Wars also are important. At the beginning of each cycle, the economy is said to be stimulated by a war. In the last cycle, World War 1 occurred at the 1920 peak; World War II at the 1937 bottom; and Vietnam War at what is believed by many to be the 1973 peak. Although it is disputed as to whether 1973 really did mark a peak, it seems to be the year which most analysts suspect marked a turning point. One analyst who believes that the Kondratieff Wave has some credence is Jim Gill, who studies markets for the Illinois Farm Bureau Federation. Bill believes that 1973 was the peak of the wave. He points out that 1973 marked all time highs for many agricultural prices. The end of the plateau is liable to come roughly 10 years after the high in [-arm 18', 1Y 1920 173 ? 1 17$1 1843 .1816 19 KONDRA7IEFF WAVE'S economy enters a 20 year uptrend, and finally peaks. After the peak the economy undergoes a recession, referred to as the primary recession. After the primary recession, the economy improves and becomes pros- perous for a period of time. This period is called the plateau period. Following the plateau, a severe drop occurs, called the secondary depression. This downtrend may last about 20 years. Then the cycle repeats. PG. 12 THE RURAL VOICE/AUGUST 1982 prices in this cycle, because if you look back to the last cycle, you'll see that farm prices peaked in 1920, roughly 10 years before the stock market crash, according to Gill. Gill is not convinced that we've yet seen the end of the plateau period. He thinks the western world could pull out of this recession in late 1982 and '83, and that the Reagan administration's tax cuts will funnel investments into a stock market boom which could peak around 1984. During this boom, farm prices will participate by moving higher, but they won't take out 1973 highs. Right after the boom,' "1 want to have my loans paid off," said Gill, suggesting that the ensuing drop will be the severe long term downtrend marking the secondary depression. Walt Bressert, cyclical analyst and owner of HAL Commodity Cycles in Arizona, isn't sure whether the Kondratieff Wave is currently in the primary recession or the beginning of the secondary depression. Bressert doesn't outrule the possibility that we're into the secondary depression, but suspects we're not because it might require a major "blow -off" to confirm the end of the plateau period. "One of the criteria for a speculative blow -off in the stock market is, the general public has to really overspeculate, and get into a situation where if there is a resounding crash they can't extricate themselves," he said. "I see that building now. But it hasn't happened yet." Like Gill, Bressert thinks there is a good possibility of a bull stock market, which will be followed by incredible losses. And this will mark the beginning of the secondary depression. Perhaps the most interesting view of the Kondratieff Wave comes from R.E. McMaster, Editor of The Reaper, a highly successful U.S. newsletter. McMaster hides in the quiet study in Whitefish, Montana, to devote his life to the study of economic and social behavior. He believes that western civilization will experience a major cleansing and transformation period during the next 20 years. "The Kondratieff wave definitely peaked in 1973", he asserts. "We're entering the secondary depression." He points to a host of cycles to back this up: "The eighteen and one-third year real estate cycle peaked in 1979. That cycle has been traced to the late 1790's. We're at a turning point in history with the end of the 510 year civilization cycle."