Welcome to Finance and Fury, the Furious Friday edition.

Last week we went through the Fed Theory and disconnect theories. Today I want to look at an overlapping theory to this on what is happening in society as well. I just finished an interesting book called the fourth turning and I wanted to share some insights into this.

  1. So much of what is happening in the world is built around politics – politics and the economy – but it is nothing new – the economy is us and our interactions with one another in commerce – and is a complex system – but at the moment there is a lot of conflict – and the tendency to try and control a complex system
    1. Politics – whilst most people vote – especially in Australia where it is compulsory – we have little to no say in the policies being implemented –
    2. But even less so when it comes to Central banks and the monetary system – none of us get a say in how Monetary policy is conducted – get some say as far as voting for people who promise some fiscal policy – but when they are in anything goes
    3. However – the entire central banking community is a controlled financial system by bureaucrats who are unelected and unaccountable – when they make poor decisions – no consequences
    4. I would say that they have more power over our daily lives than politicians – they aim to control and direct individuals’ consumption and production behaviours – all done normally from meeting 11 times a year
    5. When you stop to think about it – this system doesn’t seem that natural – unlike a cycle of growing old
  2. Are things unravelling or just unfolding on a normal cycle? And how do central banks and Governments fit in?

Brings in the concept of the Fourth turning – by authors Strauss and Howe – Similar to K Wave theory – there are Cycles – and turnings within a cycle –

  1. each turning as lasting about 20–22 years – and four turnings make up a full cycle of about 80 to 90 years – essentially the average life expectancy
    1. Generational change drives the cycle of turnings and determines its periodicity – or the tendency for patterns to recur at intervals – so every 20 or so years you have one turning – like the four seasons – then like a year – you have a full cycles – but in this case every 80-90 years
    2. As each generation ages into the next life phase and with it comes a new social role that they fill –
      1. Go from children, to young adults, to mature adults, to retirees – within the economy and society each will likely serve different functions – even in planning that I do for clients – see different stages of life and individuals have different goals – buying first home to retiring and drawing upon accumulated assets
      2. With this – society’s mood and behaviour fundamentally changes – which gives rise to a new turning and inevitably – a new cycle
  • In this book – they point out that there has been symbiotic relationship between historical events and generational personas – Historical events shape generations in childhood or young adulthood – then, as parents and leaders in midlife and old age – these generations in turn affect history
  1. Different generations have different lives – have different lessons from different environments – But these differences follow patterns – different generations followed by other kinds of generations
    1. Each of which is Shaped by location and their time and place in history and what is happening around them – implies a pattern through history – Does play out in different forms in each turning – as the time and place in history has always looked different – the 30s looked different today from population size, technology and economic factors – but they have similar patterns – as these patterns date back to the 1500s – which looked vastly different to the 1900s where electricity – probably a bigger technology shift compared to the internet occurred – but the relative changes of the ups and downs within society and the economy – i.e. each turning follow similar patterns – then there tend to be regime changes for dominance – rise and collapse periods moving in 80-year cycles
  2. Each generational Mood is important – at one extreme is the Awakening and at the other is the Crisis
    1. The Awakening – this is compared to summer and Crisis compared to winter
    2. The other two turnings in between are transitional seasons – where you have the High and the Unravelling
      1. High is similar to spring and the unravelling is similar to autumn
      2. In this book they went through 26 theorized turnings over 7 cycles – from the year 1435 through today
    3. To go into further detail on each of these –
      1. High – the First Turning – occurs right after a Crisis
        1. During this period – Society is confident about where it wants to go – there is high confidence in the future and most people are on the same page – in the book – the most recent First Turning was the post–World War II around 1946 and ending around the early 1960’s -in the US coincided with the assassination of John F. Kennedy
      2. Awakening – Second Turning – era when institutions are attacked in the name of personal and spiritual autonomy – this is normally around the same time as when society is just reaching its high tide of public progress
        1. people suddenly tire of social discipline and want to recapture a sense of “self-awareness”, “rise of activism”
        2. most recent Awakening was the “Consciousness Revolution,” which spanned from the campus and inner-city revolts of the mid-1960s to the tax revolts of the early 1980s – the Anti-war movements and the rise of the hippie/LSD culture
      3. Unravelling – Third Turning – mood of this era in many ways the opposite of a High: Institutions are weak and distrusted, while individualism is strong and flourishing – when society wants to come together and build and avoid the destruction of the previous crisis – this period comes after Awakenings as society wants to atomize and enjoy the continued high
        1. most recent Unravelling began in the 1980s and includes the Long Boom and Culture Wars – In Aus saw this back in 1996-2007 as a focal point – elements of the unravelling does still lap into the crisis period – such as the cancel culture now present
      4. Crisis – Fourth Turning – era of destruction – often involving war, revolution or a financial collapse
        1. institutional life is destroyed and rebuilt over time in response to a perceived threat to the nation’s survival
        2. After the crisis, civic authority revives, cultural expression redirects towards community purpose, and people begin to locate themselves as members of a larger group
  • Last Fourth Turning began with the Wall Street Crash of 1929 and climaxed with the end of World War II
  1. But at the core – At the heart of Strauss & Howe’s ideas is a basic alternation between two different types of eras, Crises and Awakenings
    1. Have the Awakening and unravelling in-between – but through each cycle – there are defining eras in which people observe that historic events are radically altering their social environment
    2. Crises are periods marked by major secular upheaval, when society focuses on reorganizing the outer world of institutions and public behaviour – like today with the bottom up social enforcement we are seeing going on – where people at the bottom are begging for fines and prison sentences to be enforced on those not following the governments rules – where you have social conformity through social shame – they say the last Crisis period was spanning from the Great Depression and WW2 – saw similar events play out – thankfully not as extreme back then –
  2. However – with each turning and cycle – we are left with is greater institutional controls – During Crises, great peril provokes a societal consensus, where an ethic of individuality gets destroyed to confirm with the social norms and strong institutional order – what the Government says you will do – and then the people police themselves – bottom up – been seen through history many times
    1. Time is the differential as to why this isn’t an obvious point – if you take a year with seasons – we have all lives through a year worth of seasons – but doubt anyone listening to this would have lived through a full turning – why I like talking to grand parents –
    2. When you look at history – things rise and fall – but some things stay around – over the past number of turnings – what has stayed around and enshrined themselves have been central banks – used each turning to cement more control
  3. These entities Want of control cycles – shows a massive level of hubris – this is evident at the moment – The idea that Governments and Central banks can control cycles is emerging – even the utopian theories of MMT are coming into the main stream – however the more they squeeze the worst it can often make it – you cant fight the tide
  4. They are Trying to control a naturally occurring cycle that is build on the hopes and dreams of those in the business cycle and the economy
    1. The nature of hubris – means that your very overconfidence in doing an act will lead to something else going wrong – why I have the position that legislation that intends to do good ends up going bad – too many orders of effects
  5. 2008 may have been the start of the fourth turning – but it went largely unrecognised due to Central Banking and Governmental interventions –
    1. Between 2008 and now and when compared to the 1930s – seeing the emergence of similar scenarios – Fears of deflation – haven’t seen since the 30s – the emergence of new threats – such as competitive devaluation – beggar thy neighbour policies – destruction in global trade – rising gap between rich and poor and the fears of future living standards
    2. 2020 might be the year that the transition starts to become obvious – The combination of financial and economic crisis – the breaking up of civil society through the fragmentation of individual ideology – even a de facto major power play between the US and China
    3. This being said – we are the richest society ever known – even with a major collapse – still be the richest – even compared to 1930 standards – if The fourth turning started around the GFC – each lasts 20-30 years – so likely until 2030 that things are rocky for
  6. However – Central banks do extenuate cycles– inserting a body into the natural cycle to try and manage that to soften downturns – Started really involving themselves in the early 1900s – but we have been through many downturns since then – every time – even with intervention – through the overarching structure there was this idea cemented that this body is needed – even though they can’t prevent downturns – they have been there to try to soak up the mess – however given what they have done and the damage that they have created to the economy – they technically have forced their will on a world that wasn’t ready – happens in cycles – as the unravelling starts to occur – institutions want to gain more power and become more draconian
    1. We Never had a cleansing process after the GFC – or even now – what goes up must come down – and similar to seasons – downturns are actually needed – like winter – winters kills a lot of vegetation off so new things can grow and give the environment a break – just as forests need fires, rivers need floods – society and the economy needs events that clean out the debris – or sclerotic parts of the economy – those entities that no longer functions – a changing of the guard if you will from the old to the young – it is the price that must be paid for a new golden age – however – the political and monetary powers who are in current control are fighting against this – but it doesn’t mean that they will succeed in avoiding a downturn – it is the nature of hubris that they can delay but not avoid – as one so called solution can create 100 other potential problems –
    2. This being said – the 4th turnings are not meant to be apocalyptic – They shouldn’t be seen in this way – they are actually necessary – but the longer that they are delayed or artificially propped up – the worse the downfall is
      1. From a peak to bottom sense – there is naturally a bottom to a decline – but say markets dropped form 6,000 points to 4,000 points – large drop – but not as large as a drop from 8,000 to 4,000 – end up in the same place – but one was artificially created and hence the drop is larger
    3. But if you have all your wealth in the system you don’t want this to occur – Hence why markets are being propped up – the old guard (older generations) are in power are in investments like shares and property and don’t want it going down – politicians have investment properties – have large allocation to shares – have their own interests but have massive levels of pull to try to avoid downturns – they are on the shore lines with buckets trying to keep from the tide from going out
    4. All of the individual social events going on act as great distractions – cant beat the fact that society and Markets move in cycles – due to us being humans
      1. Markets are driven by humans – no humans, no markets – so markets can change in relation to society and humanity as well – as I said earlier – most people listening including myself would never have lived through a full turning
        1. You have New wave of investors coming into the market – changing how markets operate – you have central banks getting additional access and scope to markets – also changing how they operate
      2. A sign of this is when tracking this to the economy – take the confidence indicators – for individuals and business
        1. Take the confidence intervals today minus 6 months ago – If you think that today is better than the future – tends to indicate end of the cycle before another turning
        2. If you think that tomorrow will be better than today – the new cycle has generally started and things are likely to improve
        3. Important point to remember – Things will get better – in time – we are just in a cycle of time – I wouldn’t say that this is all perfectly predicted – but it is observations on what has happened through time – what must go up must come down, what is young must grow old – boiling water comes back to room temp when not heated – it is the nature of things
          1. Cycle of human nature – more confidence and more spending – more positive feedbacks –
          2. Use this as an opportunity – to Learn from it and grow from it
        4. However – remember the factor overarching cycles of institutional powers – the more power they have the longer they can delay the downturn of market cycles –
          1. But not forever – eventually society catches back up – so time will tell what the ultimate outcome will be
          2. The fed theory may prevail for the foreseeable future – or – something else in the turning to a new cycle may replace it – either way – we are still going to be one of the richest societies ever known – it is all about choices that you make –
          3. If you are reliant on the powers that be – may be a different story – but the more self sufficient that you become – the more you move above the cycle and out of it – next week ill talk about the 8 forms of capital to help expand on this concept

Thank you for listening to today’s episode. If you want to get in contact you can do so here: http://financeandfury.com.au/contact/

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