What's Next for the Economy

Inflation

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Inflation has an extremely long cycle. It is related to the 54-year cycle, also known as the Kondratieff cycle or the “Long Wave,” which represents the changes in prices of products over time. At this time, inflation is so benign that people don’t even think about it. In fact, some are more worried about deflation than inflation. However, all this will change in the coming years, and we all need to prepare and plan for the eventual and inevitable pendulum swing to the other side of the inflation cycle.

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Since the cycle for inflation is 54 years, half the cycle is 27 years. The bottom of the current cycle occurred around 2009 (1982 + 27 = 2009). The next peak of the inflation cycle should occur around 2036 (1982 + 54 = 2036).

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The Stock Market

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What will drive the market of the 2020s?  Is it going to be a stock market boom?  Will it be like the 1990s?  Or will it be more like the 1920s?  I think it will be a little of both.  It will be a little like the 1920s, in that it will occur despite the effects of inflation.  It will also be like the 1990s, in that I believe that innovation will drive the market, like the Internet did for the turn of the century.  The challenges of energy and the environment will create opportunities for creative people all over the world, and this will provide a launching pad for new products that will make our lives less dependent on fossil fuels and our environment less subjected to pollution and greenhouse gases.

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Since the cycle for the Stock Market is 36 years, and half of the cycle is 18 years, the bottom of the current cycle should have occurred in 2018 (2000 + 18 = 2018).  The next peak of the Stock Market cycle should occur around 2036 (2000 + 36 = 2036).

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Real Estate

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Many economists and academics have recognized the existence of the real estate cycle.  The work of Simon Kuznets is particularly noted, as he is credited with identifying the 15-25 year “building cycle” which is now generally referred to as the Kuznets wave.  This wave is associated with the construction cycle and is related to the real estate home building wave.  Since the building cycle is so long, it is not easily discernible by most business people, and because most people don’t see it in their careers more than once.  This is because most people have business careers that are less than 40 years.  Most people would see one market peak (or bubble) and not think about it or recognize the second one, because it had been so long since the last one.

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Since the cycle for Real Estate is 18 years, and half of the cycle is 9 years, the bottom of the current cycle occurred around 2015 (2006 + 9 = 2015).  The next peak of the Real Estate cycle should occur around 2024 (2006 + 18 = 2024).

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The Business Cycle

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The business cycle is a critical and fundamental element of macroeconomics.  It is the basis of many economic decisions, and the primary focus of articles or pieces in print media, radio, television, and the Internet.  The business cycle is ubiquitous and will get millions of hits when searched on Google or other search engines.  Even with all this interest and debate, it is still misunderstood.  However, if you want to be successful in the personal and professional aspects of your financial goals, you need to understand the business cycle.

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Since the cycle for Business is 9 years, and half of the cycle is 4.5 years, the bottom of the current cycle should have occurred in 2018, but was delayed by the fiscal stimulus of the Trump tax cut.  The first two quarters of 2020 had negative GDP growth, which is the definition of a recession (the bottom of the cycle).  The next peak of the Business cycle should occur around 2025 (2020.5 + 4.5 = 2025).