The Demographic Cycle and the Likely Effect on the Economy

Economics are cyclical there is no question. Moreover, there are clearly shorter and longer cycles. Recently, I saw the idea of an 80 year cycle ending in a very deep dip. This discussion maintains that this is where the economy is today. Certainly, this is a more painful period than we've faced before and the idea deserves attention.

Under the 80 year cycle theory, an argument exists that we have not hit bottom yet and that in fact a much deeper trough lies ahead. Economic forces that would drive such a dip exist and are pressuring our economy. For example, the tremendous amount of sovereign debt (debt held by the governments of countries around the world) is likely to put intense pressure on rates in the not distant future. The current U.S. federal stimulus is not carrying the impact that officials had hoped for and as it is waning signs of weakness exist across the economy. Under some who espouse this theory the housing market should drop to pre 2000 market prices with very large drops in California, Florida, and areas of the East Coast leading the way. Along with this, commercial properties will take even heavier losses than have already been seen (Commercial is down 43% nationally since the peak with most of the drop occurring in the past 12 months).

From my perspective, I can't find significant fault with the 80 year cycle. Moreover, I believe continued significant drops in some housing areas are likely to continue. Also, a prolonged almost stagnant recovery period seems to be emerging as many economists have predicted. Given, the size and length of strong bank profits we've seen since the crash, I do not expect and implosion like second dip. Instead, I believe continued drops in some geographies and some market spaces is likely. I think employment growth will only be strong enough to chip away at but not sharply reduce unemployment nevertheless the total employed base will grow significantly during this weak period helping repair state budgets and beginning to turn the corner on Federal budget pressures. I expect this period to last until the last of the pre-peak mortgage discontinuities (mortgages who because of rate and loan to value aren't supportable in a higher rate lower loan to value market) are washed out of the market.. Also, the still continuing significant deflationary value issues caused by the bank losses on consumer debt and real estate debt, the loss of much of the real estate and real estate construction sector of the economy must fully wash through the market before the cycle will be behind us.