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Long-Wave Business Cycles

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PostPosted: Sun Jul 13, 2008 6:17 am    Post subject: Long-Wave Business Cycles Reply with quote

The U.S. had deep depressions from 1873-79 and from 1929-38. However, the Fed prevented another deep depression in the 1970s, although the U.S. had three recessions in a period of inflation from 1973-82. George Soros calls these long-wave business cycles "60-year credit bubbles." However, why would demand for credit be strong for 60 years, creating a bubble, and then weak for 10 years, to burst the bubble? (Although the Fed expanded credit in the 1970s to prevent another deep depression).

I believe, long-wave business cycles are caused by uneven labor supply, resulting from wars. The U.S. long-wave business cycle was set in motion by the Civil War, where a large proportion of the U.S. population in their 20s and 30s died. Consequently, in the 1870s, there weren't enough "prime-age" workers, which caused a massive economic bust (today prime-age workers, which is the most productive group, are between 35-54; however, in the 19th century they were younger).

There are some similarities between the U.S. economy a hundred years ago and today. Immigration was high a hundred years ago. However, those immigrants, mostly from Western Europe, had roughly the same skills compared to the domestic population and may have been roughly the same age. Today, immigration is also high. However, today's immigrants are generally from Third World countries with lower skills and may be somewhat younger than the domestic population. Also, a hundred years ago, the U.S. was at the height of the Industrial Revolution (from 1871-1914). Today, the U.S. is at the height of the Information Revolution (that began in 1982). There were many inventions in the Industrial Revolution, including the auto and airplane. Today we have the "Information Highway."

Japan lost a large proportion of its population during WWII, which caused it's long-wave bust in the 1990s. During the Great Depression and WWII, the U.S. population growth rate fell, i.e. a Baby-Bust from 1930-45, followed by a Baby-Boom from 1946-64, who were unproductive in the 1970s and entered their productive prime-age years in the early 1980s.

Also, I may add, George Soros, along with Bill Rogers, trade on these long-wave business cycles. They invested in the commodities boom early. Another economist, Warren Buffett, entered the commodities market too early.
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