Historical Economic cycles

The global economy has undergone a number of important expansions over history. In recent history, these included:

1. 1904-1929: This period ended with the Great Depression (25 years).
2. 1947-1974: This period was ended with the early 1970s oil crisis (27 years).
3. 1982-2003+: The current cycle has yet to reach an end (21 years to date).

expansion has undergone 3 major sub-rallies:

1. 1st cycle: This lastest from 1982 to 1990. It was ended by higher oil prices and inflation.
2. 2nd cycle: This latest from 1992 to 2000. It was ended by the dot-com crash.
3. 3rd cycle: This started in May 2003.

These cycles are often said to be driven by technology, but really they are being driven by monetary credit cycles. Only in `easy monetary conditions` do a range of technologies get funded. These cycles collapse only when the stimulus which sustained them can no longer be sustained. Slowing productivity gives way to higher inflation. The opening up of China & other 3rd world markets have extended this cycle by keeping inflationary pressures subdued.

We do need however to recognise that whilst inflationary pressures have been minimised as industrial capacity has shifted from developed countries to developing countries, this cycle has been stifled by lack of reform in the EU and Japan - the 2nd and 3rd largest markets, and ultimately 2 of the 3 major consumers of producer country products. With US consumer capacity max`ed out, the capacity of these 2 economies to carry the burden is poor. This has to be inflationary, particularly when combined with monetary policy.

Despite the loss of jobs in western markets, US employment is fully employed. To some extent there are early retirees as wealth explodes, whilst a great many workers are migrating into the service sector.

There is some expectation China & other developing economies will extend this cycle, but what of the developed countries - Japan and EU - which are stifling it. Japan is at least showing signs of reform, but it will take time.