The continuing economic chaos

‘The period of Political Chaos began in October 2015. The period of Economic Chaos will begin in January 2020. Do not be surprised by the bizarre economic news that will soon fill the headlines.” If you did not accept that in September last year when I wrote it, you were not prepared for 2020.

The cycle is always the same: political chaos followed by economic chaos, and then followed by an economic reset.

We want to believe that the crisis of the chaos is the “reset” and things will be better. The “crisis” is not the reset that changes the longer cycle. The cycle creates a shift from confidence in the public sector to confidence in the private sector—and back and forth—and needs a great reset to happen.

You could say the crisis of the economic confidence in the private sector peaked in 1929. That was the end of a long cycle. But the economic reset did not come until six years later, in 1934, when confidence switched back to the public sector and Western socialism was born.

Government funded public works projects and pension schemes like Social Security were instigated. The US’S First Transcontinental Railroad was built to join the eastern and western halves of the country in 1864. Government’s role was to provide a general framework for the rail lines, some government guaranteed loans, and some donations of right-of-land in return for priority services—like mail and military—on the trains.

From 1934 though, the US national highway system and most dams and bridges were entirely government projects. This change in cycle was not limited to the US. Nationalsozialistische Deutsche Arbeiterpartei—the National Socialist German Workers’ Party—was founded in 1920. But Adolf Hitler, the party’s leader since 1921, was appointed Chancellor of Germany in 1933.

As the Private sector cycle took hold, there were fundamental changes. There was a worldwide move away from planned economies towards free-market capitalism not seen since before 1929. Under Deng Xiaoping, China embarked on extensive reforms in the 1980s, opening the country’s economy and allowing capitalist enterprises to operate. For the first time in world history, trans-pacific Ocean trade equaled that of trans-atlantic Ocean trade.

The private sector changed the global economy. Multinational manufacturing corporations relocated into Asia. Free Trade Agreements were signed. By 1989 countries with communist controlled economies were overthrown. Government- controlled economy usually requires government- controlled politics. That was when “populist” governments were acceptable unlike for too many experts today.

The private sector has its share of failures also. The “Black Monday” stock market crash happened in 1987. Mexico suffered from a debt crisis starting in 1982. The US had its Savings and Loan scandal. Moving forward, the financial crisis hit East and Southeast Asia in 1997 and 1998.

We are now in a Private Sector cycle that began in 1985. It will end in 2032. However, the major economic reset will peak in 2024.

The current leg of the cycle that started in January 2020 will run until March 2022 and we will continue to be on a wild ride. Two things to watch for: A strong US dollar will cause a debt crisis for countries (not the Philippines) with excessive foreign denominated loans. We will see an increase in food supply problems globally. And at the beginning of 2021, expect more social unrest and protests, as most economies will not recover from the pandemic soon.

E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter @mangunonmarkets. PSE stockmarket information and technical analysis tools provided by the COL Financial Group Inc.