Magnitude and Form of Expected Economic Recession
A bear market of Grand Supercycle scale should be of sufficient magnitude to be accompanied by a severe economic recession. The last Grand Supercycle was terminated by the bursting of the South Sea Bubble and Mississippi Bubble in 1720. This was followed by a period of economic stagnation which lasted over 50 years, which is longer than the length of the Great Depression. If the Grand Supercycle theory is correct then the magnitude of the current recession should be of greater magnitude than the Great Depression, and possibly of greater magnitude than the severe economic recession from the 1720s–1770s that terminated the previous Grand Supercycle of the Renaissance.
It should be understood that this is meant in relative rather than absolute terms, so that rather than the standard of living dropping to the lows of the Great Depression what may occur is simply many decades of economic stagnation.
However, if the termination of the current Grand Supercycle coincides with the termination of an Elliott Wave of greater degree, then the economic recession should be of a significantly greater magnitude than the previous Grand Supercycle collapse. This would be the case if the current Grand Supercycle is the 5th wave of the so-called X-Wave or Millennium wave. beginning around 1000 A.D. with the end of the Dark Ages. This wave configuration is accepted by some Elliott wave analysts but rejected by others.
A controversial issue is whether the severe economic recession accompanying the termination of the current Grand Supercycle will take the form of either a deflationary depression or a hyperinflationary period. Robert Prechter has repeatedly stated that the collapse will take the form of a deflationary depression probably followed by hyperinflation. This is made clear in the following quotes from October 2006:
JIM: If you were to make your case for deflation right now, what would be the key factors supporting that view? BOB: The credit bubble: the fact that we do not have currency inflation as much as we have credit inflation. And credit bubbles have always imploded. The amount of dollars out there that are greenbacks – actual cash – is miniscule compared to the dollar value of credit instruments. So in my view the Fed is utterly powerless to prevent the ultimate deflation of the credit bubble. And some people say, “Well, they can print money.” Fine, that would just make the credit bubble collapse faster as soon as bond holders realize that’s what they were doing. There’s no way out of it. So that’s the argument.
...
BOB: Well, the hyperinflation part is a pure guess based on politics. It has nothing to do with reading markets. I think the markets are telegraphing deflation, and I’m very confident about that. Hyperinflation to me is going to be the natural political response. I mean these people in Congress are so irresponsible – except to themselves and their families, of course. They always get reelected so they’re doing that correctly. I mean, it’s working for them as individuals but it’s not working for the country. Anyway, to save their own skins I think the most likely thing is that they will turn to the Treasury, whether they keep the Federal Reserve System or not, and say, “Let’s print, let’s get the machines going and print those greenbacks and spread them around.”
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