For years, I have foreseen an unfortunate, but inevitable crash in the economy. The reason I say inevitable is based on the simple fact that our economy follows a very apparent "four seasons" if you will, much like those we experience in weather patterns. These four seasons, however, take much longer to play out.
Over our lifetime, or about 80 years, the economy goes through four seasons, just like our weather each year: spring, summer, fall, and winter. The last winter season was from 1929–1942 after the bubble boom of 1914–1929; followed by a spring boom into 1965–1968; then a summer slowdown with rising inflation (like temperatures) into 1980–1982; then a fall bubble boom into 2007. The next winter season is ahead from 2008 into 2020/2023 as we predicted 20 years ago with deflation in prices, just like falling temperatures.
Knowing this simple, and predictable, fact allows us to plan ahead for our financial futures. You can’t change the weather or the economic cycles – you can only “reset your sails.” We plan for winter by buying coats and stocking up on firewood and fuels; we go snow skiing instead of water skiing. You have to change your investment, business, and life plans for this inevitable winter season ahead.
This is where the current government initiative to handle our economic downturn is having problems. Instead of looking at the underlying, predictable factors that caused this economic downturn, the government simply tried to mask the problem by feeding our economy a magic blue pill. It is now becoming evident that the stimulus program or "Viagra" didn't work, and we are now all faced with "ED," or economic dysfunction, again.
Just as we calculated in The Ticking Time Bomb update to How to Prosper in a Downturn, this stimulus program ignited a stock and economic recovery. However, it is now predictably failing as Baby Boomers are aging into a "saving vs. spending" lifestyle. The excessive debt levels have become so tremendous that consumers and businesses are having to cut back and stop borrowing, only adding to the stimulus stalemate. Now, the recovery is fading after a Dow rally to around 11,000. Another major stock crash is likely just ahead from mid- to late July into December.
The doom and gloom of this statement may seem frightening, but there are positives that will come from the necessary restructuring of our economy. This restructuring needs to start with the government helping in writing off up to $20 trillion in debt of the $42 trillion that the private sector has accrued. This action would save over a trillion dollars a year in interest payments for consumers and businesses – forever – and cost the government around $8 trillion to support the banking system while it goes through that “detox” process. It is very counterintuitive to understand, but this type of long-term stimulus program will create a much needed deflation. Deflation may seem painful at first, almost like a detox to kick our debt addiction, but it will lower our cost of living and business and ultimately set the foundation for the next mass prosperity boom. To understand this fact, all we have to do is look into our economic history and the "seasons" that our economy has weathered.
The last “Great Depression” in the 1930s eliminated a lot of debt and forced businesses to “shake out” and consolidate in a “survival of the fittest” struggle to create even lower-cost products and services that became even more mass affordable into the 1940s to 1960s boom. We saw in the boom from 1942 to 1968 that the prosperity spread more to everyday households, and this will happen again in the next global boom from 2020/2023 and forward. Deflation is a natural process like winter every year, and it will be good for our economy long term, even though it will be painful at first. Winter sets the stage for the next spring boom and longer-term prosperity.
Looking at our economic situation from this perspective makes it that much easier to live through times like these. You can see the key economic trends that will impact your life, business, and investments over the rest of your lifetime. Demographic cycles, technological innovation cycles, and even predictable commodity and geopolitical cycles can allow you to see the most key and general economic trends for decades ahead, not just years. Politicians do not largely drive our economy; people do. By acknowledging this, you can easily use our forecasting tools to plan your major life, family, investment, and business decisions decades into the future and not be “surprised” by major events like the recent financial meltdown – you can be “at peace” with change – and change is the one thing you can count on.