In 1992, James Carville hung up a sign in Clinton’s campaign headquarters with three bullets—the middle one won the election against George Bush.
I think the flip side is more relevant—the economy is an artificial construct, a way for humans to get their monetary ducks in a row, and as a society we’re completely enslaved to it.
A couple of weeks back, following a pandemic and a regional European war, inflation spiked, as it always does.
After a couple of American banks collapsed and the Fed bailed them out, the business channels hosted many a pundit who railed about the sharp rise in interest rates.
Inflation is very contagious, much like the pandemic, and all central banks cool down the ‘economy’ by raising rates.
Economists love to talk about cycles, so there is a rate-rise cycle that is apparently coming to an end—wise economists predict that enough has been done to cool the economy down, and inflation will retreat. Of course, goods that are now much more expensive will not lower in price—that ship has sailed—they just won’t go up as much.
So… how long is an economic cycle? Er… how long do you want it to be?
The economic cycle, or business cycle, is defined as a four-stage process—in the diagram, the cycle looks placid, predictable, and regular—mathematically, it’s a sine wave, so you could fit a simple equation to it, and from then on our life would be totally predictable.
Oh, I don’t mean like that! We’d still fall in love, fall out of love, fall ill, and—the most non-linear event of all—fall over and die, but our economic life would be predictable—as boring as the missionary position.
But the chart is kind of weird. A sine wave has an amplitude (height) and a wavelength—that’s peak to peak or trough to trough.
Night and day, or day and night.
But this diagram is a bit odd—it has two peaks and two troughs. The first block is called expansion and the last is called recovery, but they’re pretty much identical. The first part of expansion is the last part of contraction—you get the picture…
Oh, you don’t? Don’t worry, neither do they.
Let’s talk about another sine wave—one that is (almost) entirely predictable—the tide. It ebbs and floods, there’s a low tide followed by a high tide, the full moon brings the spring tides, the gibbous moon the neap—almost Shakespearean in its poetry, the waxing and waning of the moon, the slow orbit of our Earth around the sun, the Ides of March.
Joseph Fourier—a mathematical genius who was a government administrator under Napoleon—discovered a way to analyze these waves and allow humans to predict the tide. Of course, sailors could know the tide in other ways—Abraham the Astronomer provides such instruction to the captains of The India Road—but with Fourier’s genius, we were able to map the forces that drive the tide.
These forces derive mainly from the sun and the moon, and are given names such as S2 and M2, but they also come from the attraction other planets exert on Planet Earth.
If all this sounds a bit esoteric, it’s nothing compared with the attempts to comprehend and forecast economic cycles—you might as well teach a Beagle to play the blues.
The whole economic concept, as an artificial construct, is predicated on the vagaries of nature—and worse, on the vagaries of the human mind.
Yup, pandemics, wars, panics, pandemoniums, politics, fads, bads, mads, dads… you dream it, it’ll come true. The long arm of non-linearity comes in and flips the economy like a child’s toy.
After the US banks bit the bullet, the Saudi National Bank Chairman, Ammar Al Khudairy, decided to shit in the soup—he told Bloomberg that Saudia Arabia was absolutely not prepared to put more money into Credit Suisse.
In the ensuing panic, the Swiss bank hit the wall, forcing the Swiss government to orchestrate a takeover by UBS—the Swiss hosted a Sunday evening press conference, to the amazement of all cuckoo clocks in the land, led by the Swiss president in person.
The Saudis took a severe haircut. Two Sundays later they slashed oil production to cut their losses—on Monday, oil went up twenty per cent on the global markets and the stockmarket weanies scurried about like blue-assed flies.
The energy cost increase does wonders for mid-east oil producers, but it’s also very handy for one Vladimir Putin, since the Russian national budget is pegged to oil.
The rise in energy costs will fuel, if you excuse the pun, another round of price increases in everything that depends on energy costs, which is er… everything.
Like the beat beat beat of the tom tom, there goes inflation.
Also, conditions for Russia to finance its special operatsky improve significantsky.
Central banks in the US and Europe will have to rethink their termination of end-of-cycle rate hikes, as the cycle goes from monocycle to ejector-cycle.
And who knows, maybe a few more banks with skeletons in their safes will be bound for glory.
The economic cycle is non-linear—both the wavelength and amplitude are merely aspirational. Cycle duration has varied from two months to sixty-five months.
And that sine wave? It’s as fictional as the economy itself.
Here’s a tough question.
Who gets fucked?
Actually, it’s only tough because no one wants to answer it, so I will.
We do.
The India Road, Atmos Fear, Clear Eyes, and Folk Tales For Future Dreamers. QR links for smartphones
The India Road 
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