I’ve already mentioned the Kondratieff wave here. Essentially the wave can be simplified to two formulas:
- The wave consists of the two legs of inflationary cycle – first part is 30 years of inflationary trend, which ends with absurdly high inflation, then there is another 30 years of disinflation, which ends with absurd deflation
- The whole wave is one big credit cycle – it starts with very low outstanding credit levels, when the central bank is forced to increase the monetary base not by credit increase but by printing money. Then the credit grows and the 60-70 year cycle ends with absurd credit levels and then everything collapses with massive defaults
The second rule can be simply illustrated by:
When the Kondratieff wave completes, the credit level will fall back to the start, i.e. 10% GDP, and then the next wave will start.
In numbers, it means that from 4 to 7 trillion of mortgage debt will be wiped out by foreclosures. That’s a lot, but in line with previous depressions’ experience.
Obviously it means that the Fourth Great Depression has to happen, but there is nothing we can do about it, it’s a law of nature 🙂