AND THE NEW ECONOMY.
There-in he writes;
By synthesizing Soros’s boom-bust model, Austrian business cycle theory
(ABCT), practical finance theory, and my own thoughts, I developed specific
criteria for each of the eight stages of a business cycle as depicted in Soros’s
model.
While his analysis is quite fascinating, it failed to address the current economic crisis, focusing rather on a smaller bubble that occurred between 1991 - 2002, which he refers to as the New economy business cycle.
As a student of universalism, I would suggest that what is true of an individual set of circumstances, can also be said of an even broader set of circumstances. This is to say that our universe is comprised of wheels within wheels, and that what can be said an individual event, is also true in a larger sense.
As such I argue, not that his findings were inaccurate, however they were incomplete. So I would like to take the time to investigate his findings over a 30 year period, as opposed to the micro-bubble over an 11 year period.
The 8 Stages of a Business Cycle
1) The business cycle presents a classic political market dilemnia. The fundamentals are stronger than market valuations. Politicians percieve threat, strive to rectify.
The Early 1980s recession was a severe recession in the United States which began in July 1981 and ended in November 1982.[1][2] The primary cause of the recession was a contractionary monetary policy established by the Federal Reserve System to control high inflation. Source
In answer, Ronald Reagan proposed
Reaganomics (a portmanteau of Reagan and economics attributed to Paul Harvey[1]) refers to the economic policies promoted by the U.S. President Ronald Reagan during the 1980s. The four pillars of Reagan's economic policy were to:[2]
1.Reduce government spending,
2.Reduce income and capital gains marginal tax rates,
3.Reduce government regulation,
4.Control the money supply to reduce inflation.
Source
2) Everstrengthening Fundamentals, driven by strong revenue growth. The entire stage is one of powerful price appreciation.
The mid-term Congressional elections proved to be the low point of the Reagan presidency.
According to Keynesian economists, a combination of deficit spending and the lowering of interest rates slowly led to economic recovery.[44] From a high of 10.8% in December 1982, unemployment gradually improved until it fell to 7.2% on Election Day in 1984.[4] Nearly two million people left the unemployment rolls.[45] Inflation fell from 10.3% in 1981 to 3.2% in 1983.[1][46] Corporate earnings rose by 29% in the July–September quarter of 1983, compared with the same period in 1982. Some of the most dramatic improvements came in industries hardest hit by the recession, such as paper and forest products, rubber, airlines, and the auto industry.[45]
By November 1984, voter anger at the recession evaporated and Reagan's re-election was not in doubt.[33][34][41] Reagan was subsequently re-elected by a landslide electoral and popular vote margin in the 1984 presidential election.
3) Market forms a short term price top as the inevitable correction of the prior stages of price appreciation. This leads to a temporary reversal in pricing.
As History shows, Bush Sr was elected into office following Reagan.
Early in his term, Bush faced the problem of what to do with leftover deficits spawned by the Reagan years. At $220 billion in 1990, the deficit had grown to three times its size since 1980.[11] Bush was dedicated to curbing the deficit, believing that America could not continue to be a leader in the world without doing so.[11] He began an effort to persuade the Democratic controlled Congress to act on the budget;[11] with Republicans believing that the best way was to cut government spending, and Democrats convinced that the only way would be to raise taxes, Bush faced problems when it came to consensus building.[11]
Source
4) Market becomes untypical, given strong fundamentals, and driven by revenue growth, recovery is probable, if it has strong momentum, it will signal a powerful trend.
This leads us to the Clinton years.
In 1993, President Clinton and Vice President Gore launched their economic strategy: (1) establishing fiscal discipline, eliminating the budget deficit, keeping interest rates low, and spurring private-sector investment; (2) investing in people through education, training, science, and research; and (3) opening foreign markets so American workers can compete abroad. After eight years, the results of President Clinton’s economic leadership are clear. Record budget deficits have become record surpluses, 22 million new jobs have been created, unemployment and core inflation are at their lowest levels in more than 30 years, and America is in the midst of the longest economic expansion in our history.
Source
This time period also saw the rise of the Dot-Com bubble
The "dot-com bubble" (or sometimes "IT bubble"[1] or "TMT bubble") was a speculative bubble covering roughly 1995–2000 (with a climax on March 10, 2000 with the NASDAQ peaking at 5132.52 in intraday trading before closing at 5048.62) during which stock markets in industrialized nations saw their equity value rise rapidly from growth in the more recent Internet sector and related fields. While the latter part was a boom and bust cycle, the Internet boom sometimes is meant to refer to the steady commercial growth of the Internet with the advent of the world wide web as exemplified by the first release of the Mosaic web browser in 1993 and continuing through the 1990s.
Source
5) Fundamentals weaken, boom is in danger of not only ending, but reversing, to prevent this, the feedback loop is closed through the widespread use of fundamental subsitutes, measures that rely on creative accounting, exaggerated use of alternate profit measures, highly theoretical and/or overly complicated valuation techniques.
Over 1999 and early 2000, the U.S. Federal Reserve increased interest rates six times,[8] and the economy began to lose speed. The dot-com bubble burst, numerically, on Friday, March 10, 2000, when the technology heavy NASDAQ Composite index, peaked at 5,048.62 (intra-day peak 5,132.52), more than double its value just a year before.[citation needed] The NASDAQ fell slightly after that, but this was attributed to correction by most market analysts; the actual reversal and subsequent bear market may have been triggered by the adverse findings of fact in the United States v. Microsoft case which was being heard in federal court.[citation needed] The findings, which declared Microsoft a monopoly, were widely expected in the weeks before their release on April 3.
At this period of time, President Bush jr arrives on the scene.
The Economic Growth and Tax Relief Reconciliation Act of 2001 (Pub.L. 107-16, 115 Stat. 38, June 7, 2001), was a sweeping piece of tax legislation in the United States by President George W. Bush. It is commonly known by its abbreviation EGTRRA, often pronounced "egg-tra" or "egg-terra", and sometimes also known simply as the 2001 act (especially where the context of a discussion is clearly about taxes), but is more commonly referred to as one of the two "Bush tax cuts".
The Act made significant changes in several areas of the US Internal Revenue Code, including income tax rates, estate and gift tax exclusions, and qualified and retirement plan rules. In general, the act lowered tax rates and simplified retirement and qualified plan rules such as for Individual retirement accounts, 401(k) plans, 403(b), and pension plans. The changes were so large and numerous that many books and analysis papers were published regarding the changes and how to best take advantage of them. All the 2001 tax cuts are set to expire at the end of 2010 unless Congress acts to extend them.[1]
Source
6) Twilight period, the last remaining marginal investors buy in, this fuels markets to greater heights.
In 2003 the Cato Institute writes
March 18, 2003
President Bush's tax cut has the potential to substantially increase economic growth, boost the stock market, and increase business investment. The jewel of the President's tax plan is the elimination of the dividend tax on individuals. Another key economic growth provision of the tax plan is the acceleration of income tax rate reductions. My estimates are that the tax plan, if fully implemented, would increase stock values immediately by 5% to 15% and would reduce the cost of capital for businesses by 10% - 30%, depending on the industry.
source
They go on to list 5 myths, that turned out to be untrue, as we see in subsequent evaluation.
■The Bush tax cuts have contributed to revenues dropping in 2004 to the lowest level as a share of the economy since 1950, and have been a major contributor to the dramatic shift from large projected budget surpluses to projected deficits as far as the eye can see.
■The tax cuts have conferred the most benefits, by far, on the highest-income households — those least in need of additional resources — at a time when income already is exceptionally concentrated at the top of the income spectrum.
source
7) Fundamentals Weaken, fundamental subsitutes deteriorate investment liquidation, marginal short selling, irrational despondancy.
On September 16, failures of large financial institutions in the United States, due primarily to exposure of securities of packaged subprime loans and credit default swaps issued to insure these loans and their issuers, rapidly devolved into a global crisis resulting in a number of bank failures in Europe and sharp reductions in the value of equities (stock) and commodities worldwide. The failure of banks in Iceland resulted in a devaluation of the Icelandic Krona and threatened the government with bankruptcy. Iceland was able to secure an emergency loan from the IMF in November.[7] In the United States, 15 banks failed in 2008, while several others were rescued through government intervention or acquisitions by other banks.[8] On October 11, 2008, the head of the International Monetary Fund (IMF) warned that the world financial system was teetering on the "brink of systemic meltdown".
source
8) Full Blown Market Reversal as market prices and fundamentals decline below pre-bubble prices.
In 2009 Fox Reports
Unemployment will continue to rise and could peak at 10.5 percent, one of the nation's top economists said Sunday.
Mark Zandi, co-founder of Moody's Economy.com, warned on "FOX News Sunday" that the recovery will continue to be "halting" and "fragile," backing up estimates from other economists that show unemployment peaking next summer and hovering above eight percent four years down the road. New figures released last week showed unemployment rose to 9.8 percent in September, the highest since 1983.
I hope this demonstrates the connection between reflexivity and Austrian Economics
In a 2008 interview Soros states
U.S. influence will wane. It has already declined. For the past 25 years, we have been running a constant current account deficit. The Chinese and the oil-producing countries have been running a surplus. We have consumed more than we produced. While we have run up debt, they have acquired wealth with their savings. Increasingly, the Chinese will own a lot more of the world because they will be converting their dollar reserves and U.S. government bonds into real assets.
That changes the power relations. The powershift toward Asia is a consequence of the sins of the last 25 years on the part of the United States.
