The Economy, The Fourth Turning, Kondratieff, and You.

“Why? My father would tell the story of impregnating my mother every winter solstice.” – Guardians of the Galaxy, Vol. 2

Like they keep staying in that HBO show, “Winter is Coming” except that it’s here . . . 

I can predict the future, with pretty amazing accuracy.

You can, too.

If I step into the path of the bus travelling at 50 miles per hour (0.0000822 parsecs per year) and it’s only 20 feet away, well, you can predict that future, too.

You might be saying, “But John Wilder, you’re cheating, everyone knows that you can’t step in front of a speeding bus.”  Just because you can do a thing that everyone else can do, doesn’t mean it’s cheating.  And it is predicting the future.

Now can I tell you who is going to win the next Super Bowl©?  Not with the same certainty, but a bet on the Patriots™ wouldn’t be a bad one, which mirrors every year since 2002.  I can predict with nearly perfect certainty a number of teams that won’t make the Super Bowl.

So, now that we’ve gotten the whole, “You can’t predict the future” business out of the way, I’ll describe the future via the past and via the life of Pop Wilder.

Pop Wilder started life in late autumn of 1921, and got his first job counting out dimes to pay to migrant laborers at the age of five.  His father and another guy (Mr. Potter LINK) started a small farm bank, and, there being no child labor laws of significance back then, they put Pop to work.  Pop’s boyhood home was Spartan.  By Spartan I mean very few furnishings, not that he had to go live in the mountains in the winter with only his spear to prove his manhood.  He told me that was just a joke after he made me do that.

On the bright side?  Pez® was invented in 1927.

Entering Winter (Crisis)

I’m pretty sure that Pop didn’t think much about the stock market crash at the time – New York was far away, and it didn’t seem to impact the small town he lived in very much.  But it did change his entire generation – they learned to hate debt, and distrust the stock market entirely.

As entered his most impressionable age, the nation entered economic crisis:  The Great Depression.  I think they called it “Great” because at least they got legal booze back during the Depression.  Part of the economic breakdown included a collapse of a significant number of banks which prompted President Franklin Roosevelt to close ALL banks in the United States for four days, even the ATMs.  Pop’s father had done a good job managing the debts that his bank had, and his bank reopened without incident, unlike 4,000 banks that remained closed.  The Federal Reserve and US Treasury reacted during the crisis by:

Instead he [Treasury Secretary William Woodin] decided to “issue currency against the sound assets of the banks [as opposed to issuing currency against gold]. The Federal Reserve Act lets us print all we’ll need. And it won’t frighten the people.  It won’t look like stage money. It’ll be money that looks like real money.” –  Federal Reserve History Website ()

Printing money is awesome if you can figure out a legal way to do it.

Pop worked at the bank after graduating high school as a teller until December 8, 1941, when he and a million other American men marched to the recruiting office to sign up for an all expenses paid vacation in either Europe or the Pacific.  After Officer Candidate School, Pop was sent to the Manhattan Engineering District until they transferred him to transport duty.

When I was a wee lad, I asked him if he’d ever been shot at.  “No, but I was with people they were shooting at.”  I finally got the joke when I was older.

Entering Spring (High)

Along with a million other GIs at the end of the war, Pop attempted to get into college.  He was told “no,” by the college he applied to, and just went back to work at his Dad’s bank and got married.  Eventually they had my brother, who is also named John Wilder.

When his father died, he became president of the small farm bank.  He and his brother (along with their Mother) became minority owners.  The original deal had Great-Grandpop Wilder sharing ownership of the bank with Mr. Potter 50%-50%, but over time Great-Grandpop had sold his shares to Mr. Potter when he needed extra money.

This was a time of great civic participation, of Pop Wilder’s generation beginning to take over businesses and run them with great caution, but also with great optimism.

Entering Summer (Awakening)

At some point in here, I was adopted into the family.  Dad turned down an offer to join one of the big banks in the Midwest when Mr. Potter matched his salary.  He worked at the bank his father started for 17 more years, but this was the last raise he would ever get.

Even though great societal change was underway, the United States had great and broad prosperity and resources were everywhere – we thought that, as a nation, we could spend enough money so poverty would cease to exist.  Everyone was “looking for themselves” as divorce, birth control, and abortion set the seeds for the change that was coming in Fall.  Prior to this time, there was a theoretical link between the dollar and gold.  It was primarily theoretical because individual ownership of gold coins and bullion was prohibited in the United States, though one could own silver coins.

With the severing of the link, the price of gold shot up.

Even though we had to live through Disco and the BeeGees, we still managed to get things worked out – Jimmy Carter’s values weren’t too far from Gerald Ford’s.

Entering Fall (Unravelling)

Branch banking laws took small farm banks and made them compete with large banks.  Soon after that, banks were for the first time competing across state lines.  What had been a decentralized system (sort of, the Federal Reserve really, really liked New York) became a few small banks, a few regional banks, but most of the assets belonged to the big New York banks.

Mr. Potter was getting old, and he arranged a bank sale and forced the family to sell their shares to the new owner.  The new owner reversed Pop’s policies, and began loaning to people with credit that wasn’t so great.  (“Any idiot with a truck and a backhoe,” per Pop.)  Pop had been proud that he had never foreclosed on a loan – he only lent money to people with sound credit, with income that guaranteed that they could repay.  Pop retired, and the new owner sold to a regional bank.  This happened several times, though Pop stayed on the Board of Directors long after he could hear what they were talking about during the meeting.

“Bone Preserve?  What’s that?”

“No, Mr. Wilder, that’s ‘loan reserve,’ not Bone Preserve.”

In this era the fighting between political parties went from competition to ideological war.

Entering Winter (Crisis)

Pop was on the Board when the bank was declared insolvent in the wake of the banking crisis of 2008, and sold in a fire sale of restructuring.  Pop passed on not long after.

I saw this written on a blank sign board in Alaska along the Haul Road to Deadhorse.  Thankfully, the sign was accurate – I was indeed right there.

I bring Pop’s life into this picture because I think his life particularly illustrates how and why business cycles form. These cycles are as much out of the psychology of the people who have money as they are about technological innovation or anything else.  This psychology has very significant implications to society.

The one thing that the economic crisis (followed by the war) did for the country was to clear the debt, but in a much bigger sense, it changed the opinion of the American public against debt.  Pop Wilder hated debt, and lectured me about it every morning while I brushed my teeth.  On days that he couldn’t be there, he had a cassette I was supposed to listen to.

Debt was bad, and Pop had seen the impact of it on people’s lives.  What he had seen as a child defined his life and all of the business decisions that he made throughout his life; further, it defined the psychology of an entire generation.  Pop found it immoral to lend money to those that couldn’t repay it, and would often, after a few bourbons, be a bit morose about the crap he had to take from people he wouldn’t loan money to.  He was saving their financial lives, but they hated him for it.  Outside of the tremendous borrowing for World War II, you can see that the current debt of the United States has no historical precedent (except maybe by the Romans LINK).

As you can see, whatever it is we’re doing here is equivalent to fighting WWII, but I think it probably involves buying a lot of elephant rides. – Source, Wikipedia

And as Pop’s generation slipped via age to no longer control the bulk of the financial assets of the country, the stock market poured booze in the punch bowl.  The monetarily driven Tertiary Economy (LINK) party started in earnest, debt surged, and greater and greater risk slipped into the picture as large pools of money looked for whatever asset bubble existed that year – be it the first Tech Boom, the Housing Boom, the Pez© Boom, or the Oil Boom.  Certainly fortunes were made in all of those booms, but the busts created greater and greater economic dislocation, and our current economic crisis, when viewed through the lens of history, has always led to armed conflict significantly beyond current levels.  It will end when we’re tired of the total war that we’ve created.  Only after that level of conflict will society set the psychology to avoid debt and war in the minds of the young, and only then can Spring start again.

One note: it won’t look like World War II.  The United States has invested trillions of dollars in treasure to make a World War II style war an easy win for us – no one can touch our military at this point in a conventional war.  Whatever war starts, it’s assured they won’t play by our rules.

Debt Cycles, Fourth Turning and Kondratieff

Strauss and Howe described the future in their book The Fourth Turning (AMAZON LINK, WIKIPEDIA LINK).  This book predicted our current problems.  If Strauss and Howe are correct, we certainly haven’t seen the greatest depths of the current crisis, as we observably are still in a continuation of the old order – we’ve not hit the significant break with the past that we saw at the American Revolution, the Civil War, or the Great Depression/World War II crisis.

Strauss and Howe were not the first group to figure this out, and neither was Nikolai Kondratieff (LINK), a Soviet economist working for Stalin’s USSR, though he gets a lot of the credit.  Kondratieff looked at economic cycles from the standpoint of communism and claimed that there was a fundamental instability in the debt and credit cycles in a capitalist society, leading to inevitable boom and bust, which only proud Soviet Communism could solve.  Elevated at first to a high economic post, he visited the United States and an American sent back word that he wasn’t quite Soviet enough.  Kondratieff ended up first in prison, and then finally well, um, sentenced to not breathe any more valuable Soviet air.

What comes out of the other side is (at least) partially predictable based upon the past.

1. The peak of the Crisis has not yet been reached.
2. Signs of the peak can and must include doubt as to the final outcome as well as an event so significant it removes current barriers that separate the majority of citizens.
3. In the past, the Civil War and Great Depression resulted in significant expansions of state control. These eras were times of national (post Civil War) and then (post WWII) international expansion.  Although it is likely that there will be economic contraction, it won’t necessarily lessen state control.  In Great Britain everything went socialist (for a time).
4. Religious and civic engagement will rise, this is a constant post-crisis theme.
5. There will be a sense of shared purpose – variance between Democratic/Republican party platforms will decline.
6. Civil war is possible. Continuation of a unified United States is not guaranteed.
7. Pez® production will be temporarily suspended to make more pantyhose for our troops.

Now you’ve reviewed a chunk of the history of the United States through the life of a man who viewed an entire economic cycle and was the perfect age at the invention of Pez™.

We know that life will change, and at some point the Patriots® will stop winning Super Bowls©.

Can you think of other predictions?

Share ‘em below.  And share the post!  Pop Wilder and Pez© compel you.