8 Year Cycle

After talking about the dangers of predicting the future yesterday, I will of course offer my predictions in this post. 

I know a lot of the "hard money types" are predicting that 2014 will be a bad year. I think that we all need to keep in mind the bad track record of all prognosticators, except the most lucky. Yes, I am saying that those with the most success have mostly been just lucky. Here are some dire predictions for 2014.  

These are all people I respect, but I think they overlook the resilience of the market. They also may be overlooking the cyclical nature of the business cycle. That is why it is called a cycle

No I am not talking about the supposed 50 year cycle. I am talking about the "normal" business cycle that seems to last about 8 years. A little history is in order. 

In the late 60's the war in Vietnam and the "Great Society" of Lyndon Johnson were attempted at the same time. It did not go well. President Nixon did much the same. (Note that Nixon was not a conservative, odd as that sounds. In my first presidential election I refused to vote for him.) The whole period of the early 70's was a difficult time, so it is difficult to pick an exact beginning date for my proposed 8 year cycle. But this was the beginning of it.

Around 1979 the cycle reached another point. This was when President Carter appointed Volker to be the Chairman of the Federal Reserve. This cost Carter the election. He probably knew it would. Yes, I am praising Carter. Volker raised interest rates to a degree unprecedented in US history. I remember paying 22% interest on the loan I took out to buy cattle. As you might guess this did not end well. 

The next low point in the cycle was 1991. This allowed Clinton to defeat Bush even though the recession had already ended by Election Day. "It's the economy stupid." 

The next low point in the cycle was March 2000 when the tech bubble burst. Fed chairman Greenspan had goosed the economy to prevent the great non crisis of the year 2000. This probably elected George Bush to the White House. "It's the economy stupid." 

Not letting the US work its way out of the mess of the tech bubble, Greenspan goosed the economy again. This led to the crisis in 2008. This led to Obama being elected president. "It's the economy stupid." 

If this pattern continues, a mighty big if, then one could reasonably expect 2016, give or take a year, to be the next crisis point. Since "It's the economy stupid," this may mean that the next crisis will determine if we have another President Clinton or a President Ryan. (Alas, it will not be the President Ryan in the fictional Tom Clancy series.) 

So here is my prediction for you. President Clinton will have to deal with a crisis much worse than 2008. It will be on the order of the crisis that Carter/Reagan dealt with. Interest rates will go "crazy," and return to their normal level. Since this will impact the budget deficit, the deficit will rise to the levels at the beginning of the Obama regime. (Or if you prefer, the end of the Bush regime.) How bad this will be is anyone's guess. As Yogi Berra once said, "it is difficult to make predictions, especially about the future."

Prepare as best you can.