|A probabilistic model for the unfreezing of the US and European credit markets|
Global Finance System Crisis using "primitive"
finance system equations and functions (+, %, DIV,
possible. Such oversimplified models can reveal highly
outcomes that might not otherwise be obvious -- in spite
the overt unrealistic nature of these models.
So far, the primitive equations for the payment series of (20, 25, 30 and 35) Year mortgages indicates that the nearest year the global finance markets will exit the global recession will be around 2026 (-/+ 6 years). The return to nominal health in the US credit market (equivalent to the health of 2008) is at best as far off as 2037.
|History of the current market
There was a massive bubble of debt unleashed on the world finance markets after 2002. This bubble was created by imposing artificially low interest rates in the US in late 2001. This was coupled with European and Asian investors massively investing in US bonds (corporate and federal), as well as USD derivatives.
In the case of EU investors, excessive investment in the US reached a point such that it set up circumstances that fatally weakened the European economy with respect to its ability to cope with downturn conditions. Even though the global finance markets had been awash in a longer wavelength debt bubble created at the end of the Cold War, this new 2002-2008 debt bubble was of several orders of magnitude greater than previously known.
|Known modelling issues|
|Inflation is not factored
into this primitives based model at all. Inflation's "future
should not be explicitly assumed due to the sheer amount of
debt in the US and EU finance systems -- debt adequate
generate several cycles of hyperinflation. Inflation by its
has the curse of
being chaotic -- as well as sector specific -- making it
hard to model.
inflationary circumstances can arise in ways that most
can never predict.
The US economy is subject to hyperinflation (or at least long term high inflation) due to the injection of the ~2 Trillion (2 000 000 000 000) into the economy via the late-2008 Federal Government banking and finance sector rescue packages. At this point making assumptions on how the 4 to 5 Trillion USD or EUR thrown at the global credit markets will be paid off is unknown.
There is also the gaping unknown computational issue that hides behind these computations -- the US and European Union tax burden of this finance system rescue. Not a single one of these vitally important factors can be incorporated into any simplified model as it is unclear [or simply unknown] how to do so.
|This is not a "total debt
model", if you want a model that takes into
account all US debt from all sources it is recommended that
you go here
|The US [and European
(Union) credit markets to a lesser extent]
are more or less frozen as of January 2009. There is no
to know when these credit markets will start to unfreeze,
lending will resume. Yet, these credit markets must unfreeze at
some future date.
It can only be assumed that the "paying off of the current
be the primary function that determines the return of bank
with but lesser magnitude impacts in Europe (that has
problems that are not as bad as the US).
The only way to have any kind of meaningful "guesstimate date" emerge (per the unfreezing of the US credit markets) is to run multiple mortgage payment series, average their magnitudes across 7 years and at least 4 contract duration types (20, 25, 30 and 35 Years) and hope that some residual de-dispersed energetic structure will appear.
|What this model does pay
|What the mechanical aspects
this model ignores
|Chart interpretation issues
|The computational model
|Longer term non-model effects
not accounted for yet
|Shorter term non-model
not accounted for
|Kondratiev wave FAQ
In heterodox economics, Kondratiev waves — also called Supercycles (an Elliot wave term), long waves or K-waves — are described as regular, sinusoidal cycles in the modern (capitalist) world economy.
|The global business cycle is
supposedly more visible in international
production data than in individual national economies. It
the sectors of an economy, and concerns output rather than
(although Kondratieff had made observations about the prices
According to Kondratieff, the ascendant phase is
characterized by an
increase in prices and low interest rates, while the other
consists of a decrease in prices and high interest rates.
Kondratieff identified three phases in the cycle: expansion, stagnation, recession.
More common today is a contextual refinement that states that there is a division into four periods with a turning point (collapse) between the first and second two.
|Writing in the 1920s,
Kondratieff proposed to apply the theory to
the 18th and 19th century
|The phases of Kondratieff's
waves also carry with them social shifts
and changes in the public mood. The first stage of expansion
growth, the "Spring" stage, encompasses a social shift in
wealth, accumulation, and innovation that are present in
period of the cycle create upheavals and displacements in
economic changes result in redefining work and the role of
in society. In the next phase, the "Summer" stagflation,
there is a
mood of affluence from the previous growth stage that change
attitude towards work in society, creating inefficiencies.
stage comes the season of deflationary growth, or the
The popular mood changes during this period as well. It
stability, normalcy, and isolationism after the policies and
during unpopular excesses of war. Finally, the "Winter"
stage, that of
severe depression, includes the integration of previous
and changes into the social fabric of society, supported by
in innovation and technology.
It is tempting to expand the theory to the twentieth and twenty-first centuries. Some economists, such as Schumpeterians, have proposed that the third cycle peaked with World War I and ended with World War II after a turning point in 1929. A fourth cycle may have roughly coincided with the Cold War: beginning in 1949, turning with the economic peak of the mid-1960s and the Vietnam War escalation, hitting a trough in 1982 amidst growing predictions in the United States of worldwide Soviet domination and ending with the fall of the Berlin Wall in 1989.
The current cycle most likely peaked in 1999 with a possible winter phase beginning in late 2008. The Austrian-school economists point out that extreme price inflation in the absence of economic growth is a form of capital destruction, allowing either stagflation (as in the 1970s and much of the 2000s during the gold and oil price run-ups) or deflation (as in the 1930s and possibly following the crash in commodity prices beginning in 2008) to represent a recession or depression phase of the Kondratieff theory.
Conventional Kondratiev analysis would suggest that the 2000s should represent a Kondratiev winter. The fact that it is thus far (2006) not occurring suggests either monetary inflation and pumping of global liquidity on a massive scale in an attempt to deny the business cycle, or that a cycle of a larger magnitude than the Kondratiev cycle is operative and that the Kondratiev winter has effectively been overwhelmed by this larger-degree up-thrust.
There is no credit-led expansion in recorded history that has failed to end in a dramatic credit crunch and economic catastrophe. See "Financial Reckoning Day" by Bill Bonner and Addison Wiggin, and "The Great Reckoning" by James Dale Davidson and William Rees-Mogg.
Kondratiev's own work showed a Winter beginning 1914-20. That would normally have ended around 1945, but most theorists would agree that it lasted until 1949, with a new Spring commencing in that year. Given the shortest time period for the K-Wave of 40 years that would mean a new Spring Phase beginning in 1989, and an Autumn Phase beginning in 1999, with the Winter beginning in 2009. With the longest time period for the wave of 60 years, then the new Spring Phase should begin in 2009, but that would mean the Winter Phase should have begun in 1994, and now be almost over. Given any time period between the shortest 40 year and longest 60 year span of the cycle it is impossible to arrive at a Winter Phase beginning in 2000 or thereabouts.
In fact, a Spring Phase beginning in 1949 and lasting around 25 years until the mid-70s does appear to conform with the post-War boom period, and the collapse of that boom into the slump of the 1970s, and protracted recessions of the 1980s and early 90s. Trying to connect this to periods of stock market performance is a corruption of Kondratiev's work which was to do with cycles in the real economy, not in the fictional economy of stock markets.
|Schools of Economic Though
|Governmental parties to the
|Computational models &