the boy. you're watching r t with me tom with a let's take a recap of the headlines two years behind bars for the russian punk band pussy riot triggered the novel launch of reaction both at home and abroad but russian defends the sentence pointing out its less than they would have received any euro. in the u.s. the occupy protesters taking to a new level as demonstrators stormed barack obama's campaign office demanding the release of jailed whistleblower bradley manning reaction leading to several arrests . and russia says imposing a no fly zone over syria would violate international rule responding to washington's claims that it could impose the measure on the war torn country

bypassing the u.n. . now it's the law in the still in our washington studios discusses different economic cycles and the role of central bank in the global crisis its capital account coming right up here in our. good afternoon and welcome to capital account i'm more in leicester here in washington d.c. these are your headlines for friday august seventeenth two thousand and twelve the fed's hawks are speaking out against the central bank taken more action this is according to the wall street journal but let's talk about why so much attention is paid to the whims of central banks around the world is it because for years investors perceptions about central bank power has matter most to markets and perception has been reality we'll discuss if the power of perception is running out and though it is the peak of the summer let's talk about winter i cannot see

a winter to be exact why well it historically features high volatility slowed a negative growth deal levering by consumers corporations and governments hoarding of cash by banks as a deflation and economic depression due to a bursting of unsustainable credit bubbles sound familiar i think so peter baxter will explain why he thinks when it can draw t.f. winter and where the economy should be headed based on these these and here's a hint there's hope but it's going to get worse first and early facebook investors were set free to sell stocks setting the price down to new lows this is despite disasters earlier this is a disaster despite disasters like this i should say the broader trend we've seen in stocks has been they've been rising the treasury yields have been at record lows our gas will tell us what he thinks the bond market knows that equities don't let's get to today's capital account.

so looking at the news and trying to figure out are we headed for inflation or deflation or which asset classes telling the right story stocks or bonds are sending contradictory messages and how much longer is the economic malays going to last wouldn't it be nice if there were a tried and true road map to guide us to the right answers well maybe there is kondratiev wave theory now this theory comes from nikolai kondratiev study in the one nine hundred twenty s. of historical data on agriculture and manufacturing where he went back decades even centuries and identified striking patterns of boom and bust occurring in intervals of fifty four to sixty years now it was introduced to the modern age and can draw t.-s. treaties called longways cycles and economic life doomed to obscurity though on

account of kondratiev being sentenced to the google log and his theory being upstaged at the time by keynes's who his theories may have been more conducive to politicians as a way of justifying public spending but it's relevant today nonetheless as our guest first let me set this up a bit now warn you this is a seriously simplified version of this chart but i want to explain before we get into the interview because these patterns are divided into four seasons you can see here exhibiting specific trends when it comes to. these aspects confidence inflation credit and interest rates also assets that perform the best but i'll get to that too now where are we now worrying winter and i should mention that spring's summer autumn and winter correspond with the expansion inflation plateau and depressions so winter is not good but first how do we get here let's talk about autumn so autumn is marked by confidence which goes to euphoria and inflation is

going down credit is going up principally to consumers and interest rates are going down through out so we move on from autumn to get to winter which is right over here where that euphoria well that didn't work out too well but what we see is that euphoria turns into outright panic concern and fear inflation continues to go down but it does send out right. we see a credit crunch we're credit virtually disappears it's not flowing in interest rates fall they go up during the credit crunch but then they fall much lower i should mention the ideal performing asset classes in autumn are stocks bonds real estate or excuse me stocks and real estate also bonds too but in winter after that crunch it's still stocks but also gold and cash so how does theory stack up with reality and how can it help us understand this future would joining me to hash it out is our guest today he is peter baxter he is author of kondratyev winter dot com

and he has studied all of this so he can tell us not to better than i can with that kind of subpar description of his fabulous chart what this all means so first i want to thank you so much for being on the show. it's going to be here long yeah before we get into all of the details of contracts here theory let's start out by really setting up for our viewers why they need to care how does this theory help us or you understand i don't know investing or saving or how to read the economic news or figure out what economic news we're likely to see or policy prescriptions that we should or shouldn't see when i feel that contract when there is an excellent tool for trying to make sense of these extraordinary financial times i'm living in right now. if you look at the lens of this theory go going back decades and centuries in understanding these recurring cycles of boom bust and you get a better sense of where we are in the big picture of things and i think that's lost upon the a lot of people now are specifically how this could help you if you were if you

bought into this theory as an investor at the beginning of this economic wonder you know in two thousand you would have been a stocks and into gold and commodities and you could have done very well you know when some of the pain starts likewise if you had them say a home or in certain industries. that overbuilt and had excess capacity you would have mitigated the worst of that by understanding that you were in the winter cycle phase and that is not the cycle phase you want to expand too much and so by understanding where you are in the grand scheme of things you can help minimize some of the worst pain and also manage your financial affairs better ok great you set that up well so now you think where i can draw if winter which is maybe not what our viewers want to hear but it probably sounds familiar because it's marked by high volatility slowed a negative growth deal levering by consumers corporations and governments hoarding of cash by banks at the deflation across the board depressions from bursting credit

bubbles so this all sounds pretty familiar to most people listening but how can you be so sure we're in a can draw to if winter. well you just the very fact that all of these things coexist at once is a great indicator that there's something very different going on here now also if you look at countries like spain at twenty five percent unemployment well that's that's what you would expect to see in a depression and other many other areas and measures there that are all telling you that there's something wrong there's sixty million people on food stamps as you said banks are hoarding cash and they did this in the thirty's too and there's very much much of the same type of things that were happening in the thirty's the only difference being that in this particular cycle the central banks chose to fight it through quantitative easing and that's helped stop prices do much better after the initial crash in two thousand and eight but then if you look around the

world you'll see that say that china india almost nearly every other country except for the us is undergoing a global market crash in slow motion so there are just so many things out there that tell you that this isn't a couple economic winner we just haven't had yet the final bursting of the bubble yeah ok so let's get to that where do you see this cycle going. well if you believe the contract if there are yes i do you have basically four cycles of fifteen to seventeen years and given that the last one the transition into winter was in early two thousand that would mean that the bottoming out phase of this cycle would be sometime in two thousand and six thing to seventy and so you would expect between two coming up maybe later this year or two thousand and thirteen to twenty fifteen sixteen that area would be very difficult and i think that one reason that you could point to also is if there is a liquidity was just ahead of us some fourteen trillion dollars of debt that is

primarily junk in nature it's leverage loans commercial real estate it's underwater and even short term treasury debt that i consider to be junk given our deficits and all of this has to be rolled up you know next three or four years well some of it will be but maybe as much as twenty to thirty percent will be and i would result in several trillion dollars in the pots and that's what i see happening in the next couple of years and pretty much is unavoidable and if that happens of course you're going to have economic growth contract sharply and you're going to have the capital markets fall very much too but that would be a good thing in a sense doesn't know what the long in the next and then in it sure does it would remove the excess of debt that have to be removed i mean that one of the key central themes of the contrary it's cyclic theory is that the next cycle of economic growth and prosperity cannot begin until the excess that and builds up into this previous cycle have been removed now we have some of the leverage began

in two thousand by individuals but the sovereign governments have been doing the opposite really every now and we just have a long way to go in that process so i would argue there will be a painful couple of years ahead but then i would also like to point out that i do believe that once this is done there are many things in place right now that can. sure a very substantial degree of prosperity in the contrary to bring that we expect in . a few years ok so you think we have a few more years of pain to go we haven't really hit rock bottom i'm just curious how it fits in we know central banks are going to do everything they can to try to inflate we know that probably federal governments are going to try to do the same at least probably not abruptly stop their spending at least not in the u.s. so how do we know that that bottom is going to happen with those factors is that kind of a wild card or are you pretty certain that kondratiev if wavin what it says will play out regardless. well the key assumption here is that the markets will settle

all the steps in the markets for the way of doing that you can to try to. influence them to some degree but we are good we're going to see that this is actually been a heavyweight battle of world class proportions that's gone on since two thousand and seven when brantley lowered rates to zero in gauging quantitative easing and us governments across the world including ours are running trillion dollar deficits the combination of monetary and fiscal policy has been jamming up against this contract is when or since two thousand and seven but you have to remember this happened four times in history and there's never been a contrary where it has been avoided through the issuance of more credit and debt so i'm banking on history interesting ok so your bacon on history but from what i understand this cycle has gone on longer than other traditional layer throughout history that you're citing so why do you think this has gone on longer i think i

think it's gone on longer primarily because of two things one is that a life time span and has increased markedly since the beginning of the last cycle which about sixty seven years ago so i think the average age then was around. late fifty's and now it's in the mid seventy's so that. in general has to push out some but also we have the decisions made by governments and central bank she said have purposely been in denial about this and that you've taken the steps to prolong the curve so i think that the combination of these two things has added six to eight to maybe ten years tore our to the cycle ok i see now just to play devil's advocate for a moment we had why just have a minute that earlier this week we had richard duncan on the show he said this isn't even capitalism anymore this is credited them enabled by the massive expansion of debt enabled by fear currency so how are you so sure that kept this this analysis of capitalism still applies and we aren't in

a totally different system entirely. i didn't hear that a couple days ago mr duncan and i thought he made a lot of the points but the key area that i disagreed with him in is that he believes that there's almost a perpetual infant component of high government spending that will make you maintain throughout history now if that would be the case i would have to wonder what would the social bank balance sheet look like in twenty fifty eight hundred quit really and what would our deficit be like with all this project there just astronomical numbers and my common sense tells me that that there this level of criticism will hit a tipping point to the limit and in addition to that i think the people already exhibited in distain for this level of government spending is i think it's going to be a lot of blowback from the citizens that will allow this to happen i suddenly think ok says in a key differences there and you think the market is going to win and have its way

so when we get back we're going to talk about more of the nuts and bolts and details we'll have much more with peter baxter author of when terror dot com still ahead to find out how can draw t.f. wave theory different different from elliot wave theories and some of our viewers are already familiar with that if they watch the show regularly and i'll respond with and viewer feedback but first their closing market numbers.

well. it's technology. innovation all the developments from around russia we've got the future covered. all right welcome back before the break we set up why you should care about can drop the if way before your guess you think that explains a lot about where the economy is and where it is headed based on historical trends now let's get a little bit more into that if you're convinced that you should be karen so peter back there let me bring you back in so that we can understand some of the basic themes that can draw t.f. wave tell us what this say is and what it's based on. well the basic theme and try to i think it's twofold first it. states that there are a recurring pattern of boom bust you know western style economies such as the us

occurring every sixty years or so and that within each of these super cycle sixty years there are some cycles of four fifteen year cycles that can try to cull the seasons that each have these certain traits and that these are already occurred in all the previous cycles and then the second core theme would be that you can begin a new long way that until the excesses of the previous cycle have been. removed for the majority of them of them and i think is interesting is as talk about the significance of the time period that it really correlates with a human lifespan so people haven't lived through more than one went there right. that's true that's and it's a very unique feature of this period is that it makes sense that explains why history repeats because people forget so many of the lessons of the previous cycle because the people who are in power or are part of the economy in their decision

making are just. are not we're not around to the previous cycles so that lends itself to why it could possibly be that this cycle is so forgotten have seen you have to repeat again yeah and we're going to get more into the charts that demonstrate kind of that in parable evidence supporting what you're talking about the first one is can draw t.f. wave more obscure than other theories do you think given that there is this evidence that that supports it. well my personal theory is their. beliefs and the financial mainstream media which i refer to as the flower of crown they don't accept this world view of this natural recurring cycles because they buy into the worldview that the central banks and fiscal policy as defined through keynesianism is a purer and can overcome and turn back and repression so that is the prevailing met that is the prevailing mindset right now in our view of most people and that's one of the reasons we're trying to are to break the sound of the public but i don't

think that they've looked hard enough at the empirical evidence because if you did you would understand maybe you'd want to look at this look at deeper right it's interesting i think and you maybe were telling our producer that that theory came around around the same times as keynes with keynes as theories were gathering steam and maybe politicians to justify public spending lean more tight towards keynes in order to maintain their power because obviously spending helps the economy but i want to move on because there's more i want to get to because the historical anecdotal evidence if you could quickly touch on that a debt jubilees that you've seen that substantiate this what is that sure well even in ancient times the hebrews understood all about economic long life cycles and this is why they instituted the biblical jubilee that you read about and they forgave debts after fifty two years and they basically rebooted the entire economy and the proper purpose for that is they understood the perils of having people in

the slave to be on one cycle it's just not a good thing to have people in slaved in depth for an extended period of time so they understood this and wrote this into their code and it worked very well for them and they prospered very well in more recent times the mayans and the aztecs had they're tying up of the year ceremony every fifty two years and they were also extinguished their deaths however in modern times this is. not. except the only jubilee we have a monitor times is the fall from bankers oh yeah and you know we've we've had some people suggest that on this show steve king talks about debt jubilees before we go we have a couple of charts i want you to give us a little bit more insight into so let's bring up this hour long wave charts and the industrial revolution i believe you can see it but tell us in a minute what we should be taken away from this ok there's there's two central ideas here the bottom shark is of economic output since the seven hundred eighty nine to the present and the reason that. it goes back that far is that it is just

shortly after the industrial revolution occurred and then that's when the beginning of this modern industrial age and the beginning of the first when try to cycle the modern age began in the mid seventy's hundred so this bottom chart shows what in fact has transpired in terms of economic output now the the two things that take away from this are that the cycle always comes back home and the the periods are recurring and pretty normal. intervals that the they they vary a little bit but they're pretty much they're pretty darn close so you know regular intervals where they come back even if you look at the components of each cycle they each have the same blueprint on how they explain the spring phase is the one with the modest growth the summer phase is the one with the most growth and then the most inflation and then you get a plateau period in the fall and then you get a severe contraction in the winter that leads to depression and then the cycle

begins and i think that when. you go ahead i wanted to just bring up the next chart because we're almost out of time so i just want our viewers to see where we are in the modern context looking at the most recent autumn and winter when was autumn when was when term beginning. ok well. the game in ninety eight and winter began in the spring of two thousand. and our viewers can see that there and you will have to go to your web site to find out the difference between kondratiev and elliot way because there are distinctions obviously but we're out of time for today but i appreciate you explaining all of this all of those charts we showed some of them with simplified versions you can see in full on peter baxter's website can draw t.f. winter dot com thank you so much mr baxter thank you very much.

all right let's wrap up with viewer feedback because it's friday and i've got an announcement to say this is a good time to do it so who is seven for six on you tube said as we talked about why board continuously please look at a ten year chart of the fed funds rate versus the library does the tail wag the dog well i want to show you that we have brought this up in the show so you can see where the spread between the fed funds and the live bore rate and you can see the financial crisis very clearly because that's when the spreads widened so here is actually bob english talking about what it shows on our july twenty fourth episode the spreads widen which is exactly what we would have expected when the financial panic came into view in early two thousand and seven and accelerated in late two thousand and seven so what we see there is really what we would expect. so that is

what you would expect now bob did say there is plenty of room for the banks to have manipulated their submissions for their own benefit on a daily basis to affect the mean but the big picture in his view was the fed is the biggest manipulator in the game and you can check out his whole interview where we talk about that chart to honor you tube channel now m. four rifle guy also commented on you tube and he said about an episode this week this is why i watch the show to learn at one time i wasn't sure what robo signing was and lauren responded on air as to what it was today i was watching the show with some family and they didn't know what robo signing was themselves they said amazes i told them what it was and how i got the question how do you know that i pointed to my t.v. and said because of that woman will now have a whole family of viewers great job lauren and keep up the fight it's really nice to hear that people are learning from this show because while we have very sophisticated viewers it's also really nice know that people that are new to this whole world of finance are learning really important information to understand our world today moving on longo where to that's an interesting name says although you

know you have great gas and i can't complain about anything i read a regular letter by grant williams things that make you go which i enjoy a lot he's also made a nice youtube film called simplicity i've never seen this man in reality maybe you might consider a new face on the show we always consider new faces and it's actually funny because he featured one of our interviews in the newsletter with michael kroger and so we became acquainted with him so we'll work on getting hammered right here on this show for you and moving on desert pundit tweeted at us lauren lyster i disagree with richard duncan on some of what he said but contrary voices expand the idea space and i wanted to bring this up because i think people get really pegged to a specific view and they get angry at us on our common boards when the person we have on the show disagrees with that worldview but i couldn't agree with a reviewer more it is so important to get a variety of views in order to understand what you think or kick the tires on what you think because you can't get to set your ways without listening to things that contradict it so i couldn't agree more and we hope to continue to try to do. that

within the realm of these alternative voices that are offered in the mainstream media well as ravan one asked me and you two do you hate men lawrence i've noticed a continual theme here it's cool if you do of course i do women most of the time so it would be fair i thought that was funny it was referring to a quote that i read of talking about a man lacking integrity and i think she meant i don't know how she meant it i meant it man isn't man kind i certainly don't hate men i love men but i'm glad you gave me that opportunity to clear it up because i would not want you to think that i hated the eighty five percent of our audience that are men who are ninety or something i am moving on one of our viewers rock eight eight zero nine asked lauren are you going to work the entire summer someone give this woman a vacation spending all summer stock in the d.c. area is one step away from prison being around all those criminals in congress deserve a break well this is a great opportunity for me to tell you that i'm glad you think i deserve

a break because we are taking one dimitris going on vacation i'm going vacation we're putting the show on a hiatus for a couple of weeks we will have best of episodes so you can catch up on some of the great interviews we've done over the past month but we've been on the show about a year i haven't taken a day off yet this year so it's time for a little vacation but we will be back on september fourth and we will have a killer lineup let me tell you it's two of guests in studio and will be back rested in full force and action but for now thank you so much for watching that's it for our show today is all we have time for make sure to come back on monday for a cool best of episode and in the meantime you can follow me on twitter lauren lyster give us feedback on the show or any you missed you tube dot com slash capital account you know you can catch the show in h.d. on hulu at hulu dot com slash capital dash account september fourth you can look for an amazing lineup and if you want to get them into. who we will have

a little web extra special posting for you in a couple of days and you can see there who are some of the guests we have in the lineup but for now from everyone here thank you so much for watching capital accounts have a great night.