We Can Discern Cycles and Waves, But Not the Outcomes

Which brings us to the present and the cycles and waves that have yet to reach the concluding third act, where the dramatic climax leads to resolution.

We can discern cycles and waves in the past and posit them in the present, but not the outcomes. A great many phenomena follow cyclical patterns, from sunspots to Peter Turchin's 50-year cycle of human history, while others form waves.

Author David Hackett Fischer (The Great Wave: Price Revolutions and the Rhythm of History) described the difference between cycles and waves:

"Cyclical rhythms are fixed and regular. Their periods are highly predictable. Great waves are more variable and less predictable. They differ in duration, magnitude, velocity, and momentum. One great price wave lasted less than ninety years; another continued more than 180 years. The irregularities in individual price movements make them no more (or less) predictable than individual waves in the sea.

Even so, all great waves had important qualities in common. They all shared the same wave-structure. They tended to have the same sequence of development, the same pattern of price relatives, similar movements of wages, rent, interest rates; and the same dangerous volatility in later stages. All major price revolutions in modern history began in periods of prosperity. Each ended in shattering world crises and was followed by periods of recovery and comparative equilibrium."

Examples of waves range from rogue waves in the sea to bond yields / interest rates which arise and decline over periods of time that vary too much to qualify as cycles but match the dynamics of waves described by Fischer. Bond yields have gone from peaks to troughs in less than 20 years to the recent span of about 40 years--at the outer duration boundary of previous interest rate/yield waves.



In other words, the cycles described by historian Peter Turchin (50 year cycles that can generate 100-year, 150-year and 200-year cycles), along with many other cycles--the business cycle, the Kondratieff credit cycle, the Debt Super-Cycle, etc.--are defined not solely by time but by their internal dynamics and measurable qualities. Waves and cycles share many of the same dynamics and are easily confused.

As Fischer observed, waves of human history share characteristics with ocean waves, which can accrete energy and become giant rogue waves that cannot be predicted even as they can be foreseen as recurring phenomena.

I posted a list of dynamics currently accreting in self-reinforcing feedback loops last January:

Catch-20: The 20 Dynamics That Will Shape the Next Decade (1/15/25).

Both waves and cycles tend to follow the dynamics of S-curves in which a trend takes off in a boost phase, matures into a peak and then decays or reverses.



What cannot be discerned are the consequences and outcomes. An economic cycle or wave might culminate in an excess-clearing recession that sets the stage for an ultimately positive rebalancing of risk and debt, or the outcome might be an excess-clearing Depression that lays waste to the entire status quo.

Two cycles have attracted much commentary over the past decade: The Fourth Turning posited by William Strauss and Neil Howe in their 1997 book The Fourth Turning: An American Prophecy (subtitled What the Cycles of History Tell Us About America's Next Rendezvous with Destiny) which laid out an 80-year cycle of four generational turnings (High, Awakening, Unraveling, Crisis) that culminate in a system-changing Fourth Turning.

This 80-year cycle aligns with the nation-changing crises of 1781 (the end of the Revolutionary War and the founding of the United States), 1861 (the start of the Civil War) and 1941 (America's entry into an existential global conflict, World War II). This cycle suggests a nation-changing crisis began around 2021.

Strauss and Howe took pains to note that the outcome of each crisis isn't pre-ordained to be positive. Complacency based on the idea that it will all turn out wonderfully due to the nation's destiny could be fatal.

Peter Turchin and his colleagues have mapped out a 50-year cycle based on data ranging from archeological to financial--or in the case of coin hoards buried in times of crisis, both archeological and financial. Turchin's prediction of a crisis beginning in 2020 drew skepticism which then flipped to recognition when the events of 2020 came to pass.

The previous era of crisis centered around 1970, a period that includes the latter half of the tumultuous 1960s (assassinations, the war in Vietnam) and the world-falling-apart early 1970s, which featured an energy crisis and deep recession, the reuniting of Vietnam by the North, crushing inflation, the resignation of a president who had won re-election by a landslide, a Constitutional crisis and an extended period of domestic terrorism that included hundreds of bombings and the kidnaping of heiress Patty Hearst--an era documented in the book Days of Rage: America's Radical Underground, the FBI, and the Forgotten Age of Revolutionary Violence.

Since I lived through this period, I observed the importance of context when defining the outcome. To those who had benefited from (and grown accustomed to those benefits) the postwar era of 1946 to 1963, the changes in culture and the zeitgeist were dismaying: crew-cuts and college sweaters gave way to long-hairs in hippie garb, music went from Guy Lombardo and Henry Mancini to psychedelic rock, those who chafed under the social and economic limitations of the previous era sought a wider range of opportunities, and the nation that was united by war in the 1940s was shattered by war in the 1960s.

To many in the older generations, this era inspired a desire to return to the good old days of relative stability and conformity to long-established norms. But to those chafing under the limits of social, political and economic hierarchies, this was a period of liberation.

Not all good, by any means, but also not all bad--depending on where you stood.

Which brings us to the present and the cycles and waves that have yet to reach their concluding third act, where the dramatic climax leads to resolution.

Will we get a controlled burn that sets the stage for regrowth, or a conflagration that burns down the entire status quo? Many reckon the present will extend seamlessly into the 2040s, while others see 2026 as the spark igniting a multi-year conflagration.

To the degree that everything from the Global Financial Meltdown in 2008-09 to the present has been artifice masking moral decay and the terminal rot of Anti-Progress, it seems unlikely that we'll be afforded the luxury of another decade to extend the second act of Ultra-Processed pretense and speculative extremes.

We can discern cycles and waves, and the arrival of Act Three, but not the outcomes, as the outcomes depend on our responses to forces in play that may well veer from linear and controllable to nonlinear and uncontrollable, at which point something different from what we planned and expected happens.

An observer on Triskelion is taking the nonlinear side of the what-happens-next bet: Provider One wagers five thousand quatloos that AI will destroy its own Thralls.


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Channeling Napoleon and Chou En-Lai

Where things will stand in three years in unknown. A little humility might serve us well, for it is indeed too soon to tell about a great many things.

Recent events call two quotes to mind, one from Napoleon Bonaparte and one from Chou En-Lai.

Napoleon: "Do you know what amazes me more than anything else? The impotence of force to organize anything."

Chou En-Lai: "It's too soon to tell."

The current backdrop is one of simplistic declarations presented as certainties because these are rewarded by the algorithms. Remarkably, few of those confidently declaring their implicit expertise ever acknowledge the limits of their own knowledge and the limits of the Ultra-Processed "facts" presented by the various interests seeking to control the context, narrative and agenda.

I reckon it fair to say that Napoleon was well-placed to survey the limits of force. That he is reputed to have observed "There are only two powers in the world: the spirit and the sword. In the long run, the sword will always be conquered by the spirit" makes sense in the context of the limits of the sword and other manifestations of force.

The phrase in the long run brings us to Chou En-Lai's "It's too soon to tell." Chou En-Lai (Zhou Enlai) was the People's Republic of China's first foreign minister and Premier, the statesman / diplomat who guided foreign policy while surviving Mao's tumultuous purges.

In the usual telling, while meeting with American officials during President Nixon's February, 1972 visit to China, Zhou was asked (in some tellings by Henry Kissinger, in others by Nixon) what he thought of the French Revolution, which occurred some 180 years earlier in 1789-1793.

Zhou's reply--"It's too soon to tell"--is presented as evidence of China's long game perspective that reflects China's long history and sagacious avoidance of rash judgments.

The real story is different but equally insightful. According to the American diplomat who was present during the famous conversation, the question was posed in a general sense, and since the participants in France's May 1968 general strike had contextualized those events in the language of the French Revolution and the 1871 Commune, Zhou interpreted the question as referring to the May 1968 uprising--a mere three-plus years before.

"It is too soon to tell"--the real story China fact of the day.

This doesn't detract from Zhou's sagacity. Events that are initially characterized by simplistic pronouncements often turn out quite differently from the expectations of those elevating superficialities to grandiose certainties.

I first visited the Shanghai residence of Zhou Enlai in 2000 (photo below) when it was a lightly visited historical site that preserved much of the period's furniture and artifacts--including the battered suitcase Zhou had used on his overseas missions.

Numerous books--most recently, The Party's Interests Come First: The Life of Xi Zhongxun, Father of Xi Jinping--have documented the difficulties faced by loyalists such as Zhou in surviving Mao's mercurial purges and precipitous humiliations of senior officials in his inner circle.

Visiting Zhou's home in Shanghai's leafy French Concession humanizes a historical figure of the sort who who are all too easily turned into abstractions.



The same can be said of entire cultures and nations. What amazes me is the ease with which commentators implicitly claim sufficient expertise about a nation, region or geopolitical puzzle to make grand categorical statements about the situation without actually knowing any people who actually live in those places.

This profound ignorance of actual individuals' experience permeates the simplistic, catastrophically misguided tropes that pass for "policy" and "insight" in an era stripped of nuance and humility about the limits not just of force but of our own knowledge.

I'm amazed that pundits routinely claim sufficient knowledge to render judgments about complex cultures they know little or nothing about. In my experience, knowing a Syrian family, or families from Venezuela--and knowing full well that these individuals may not be representative of the entire culture or nation--offers an essential insight that abstractions and numbers cannot: these are real people being displaced, and real lives being upended or shattered.

Practically everyone is now an expert on China, it seems, yet few of those quick to make blanket statements actually have any Chinese friends who trust them enough to share their own experiences of the Cultural Revolution over a home-cooked meal.

This readiness to take abstractions as expertise should give us pause, because we've seen where this leads: arrogance masking abysmal ignorance and ideology replacing experiential knowledge with simplistic canards that can only generate errors of the most profound variety. Ideology of any stripe is no substitute for knowledge gained from long, careful study and personal experience.

A recent book traces out how supreme confidence in the abstractions of "management" and "statistical analysis" and in the powers of the sword led to the killing fields of Vietnam: McNamara at War: A New History.

We can discern the usual misplaced self-confidence and hubris of "the best and the brightest," of course, but we can also see the subversive weight of sunk costs, as withdrawing from a deployment of force that has already cost the nation credibility, treasure and lives is viewed as sending all the wrong messages of admitting error and weakness. And so the policy remains doing more of what's failed.

The fact that was always overlooked was the leadership's complete ignorance of Vietnam's complex history and culture. Safe and secure in a world of abstractions, it's easy to assume knowledge of abstractions is a satisfactory replacement for real knowledge. By the time this is revealed as catastrophically wrong, it's too late.

What's remarkable is how little humility about the limits of our knowledge is ever expressed by all those making simplistic, ideologically inspired blanket statements. There are uncertainties in what's being presented, and unknowns that are glossed over to project confidence and certainty.

Where things will stand in three years in unknown. A little humility might serve us well, for it is indeed too soon to tell about a great many things. A great many unexpected things can happen in three years.


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Pretense, Staging, Expediency: the "Solutions" That Implode the Whole Shebang

Slapdash quick fixes and policies share one characteristic: they eventually implode the whole shebang.

We all know how this works: the business is failing and the divorce papers have been filed, but the optics are ugly, so the couple waltzes in, all smiles and lovey-dovey, for who wants to explain how it all went wrong?

To paper over the inevitable reckoning, expediencies are deployed: money is borrowed but the loans are kept off the books, defaults are buried, the kids' college fund is raided, promises that can't be kept are made, and so on.

To maintain the illusion that all is well, everything is carefully staged. The failing business still churns out PR, the yard service keeps the front yard tidy, and the inability to pay the university tuition is explained away as a "gap year" as the eldest child seeks work experience to bolster their career opportunities, etc.

2026 is the year when all the "solutions" of Pretense, Staging and Expediency implode on every level: household, enterprise, local, state and national, for Pretense, Staging and Expediency are scale-invariant "solutions": cooking the books, staging and hiding debt works for the state and nation just as well as it does for the sole proprietor and bankrupt household.

The only difference is the depth of the deviousness. The larger the organization, the greater the resources available to throw into Pretense, Staging and Expediency. So banks extend a new loan to borrowers who defaulted so they can make minimal payments, an expediency that enables the bank to keep the non-performing loan on the books as an asset in good standing.

Conventional economists are paid truckloads of cash to conjure up gamed statistics and bogus projections that act as eye-catching facades hiding the rotting mansion awaiting collapse.

The problem is Pretense, Staging and Expediency are not actual solutions. Since there's no actual long-term plan to address the dire consequences of previous "solutions," Pretense and Staging are deployed along with increasingly destabilizing Expediencies to mask the unintended consequences of slapdash quick fixes.

Policies touted as "solutions" that lack any consideration of the consequences are in effect Expediencies, as the first-order effects of policies that affect the entire system are hard enough to anticipate, while the second-order effects (consequences generate their own set of consequences) only unfold over time and cannot be fully anticipated.

Semantic / narrative-control Pretense and Staging are popular but self-defeating, as calling the risk-choked Shadow Banking System "private credit" doesn't change the dominoes-falling house of cards nature of expediencies as they implode. (Thank you, correspondent Anthony A., for this example.)

Slapdash fixes / policies share one characteristic: they eventually implode the whole shebang when the failure of Pretense, Staging and Expediency to actually resolve structural problems becomes unavoidably obvious. Hope clings tenaciously to Pretense, Staging and Expediency, but when this faith in falsehoods and fakery finally expires, there's no outrunning the consequences.



We'll know things are serious when those in charge are reduced to relying on lies as their last-ditch cover story.

Alternatively, we'll know things are serious when the AI chatbot declares all this is a fringe conspiracy theory and then three questions later, it's recommending survivalist strategies of the fringe conspiracy theory variety.


Podcasts: Insane Financial Imbalances and a Social Revolution (36:34 min)

Ultra-Processed Life: Unhealthy, Addictive, Deranging, Artificial (36 min)

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Everyone's a Lender Now: Shadow Banking USA

How much private credit has been put in place but isn't in the official credit total is unknown and very likely unknowable. That means total systemic risk is also unknowable.

Everyone wants to lend us money now, even though they're not banks: the insurance company Progressive offered us a loan, PayPal offers us a business loan every time we log in, and the payment processor Stripe includes a pitch to borrow money on its dashboard page.

Then there's the ubiquitous payment plans offered by seemingly every vendor / retailer.

These are parts of the shadow banking system (SBS) that we see, but most of the system is hidden in the global economy's complex financial plumbing. The shadow banking system differs from nation to nation, as it developed to avoid whatever is tightly regulated or restricted within each banking system.

Here is a general definition: "Shadow banking in the U.S. refers to non-bank financial institutions and activities that provide services similar to traditional commercial banks but operate largely outside of conventional banking regulations. The sector has grown significantly in recent years and plays a major role in the financial system, though it also poses systemic risks due to its lack of transparency and regulatory oversight."

In a global economy dependent on credit, leverage, artifice and speculation, the expansion of shadow banking is highly incentivized. How much of this activity and debt ends up in official statistics of credit is hard to know, even for experts, given that the goal of shadow banking is to avoid the regulations and restrictions that increase transaction costs and limit risk.

Risk brings us to the treacherous territory between known unknowns and unknown unknowns, as risk is a funny thing: it cannot be extinguished, but it can be cloaked, transferred to others, sold to the unsuspecting as "safe," or buried beneath complexity. It can also lay dormant, slowly dissolving whatever holds the system together, a process that remains hidden until the avalanche surprises everyone who thought the snowmass was stable because it appeared stable.

These links shed some light on the scale, asymmetries and risks built into a sprawling, highly interconnected, highly leveraged shadow banking system with few institutional safeguards or backstops.

Shadow banking system

Nonbank Financial Intermediation (NBFI or "Shadow Banking") and Capital Markets Policy

Shadow Banks: Out of the Eyes of Regulators

Bank Turmoil Is Paving the Way for Even Bigger 'Shadow Banks'



Total known credit is already a systemic risk. How much private credit has been put in place but isn't in the official credit total is unknown and very likely unknowable. That means total systemic risk is also unknowable.




Podcasts: Insane Financial Imbalances and a Social Revolution (36:34 min)

Ultra-Processed Life: Unhealthy, Addictive, Deranging, Artificial (36 min)

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The Good News Is People Are Realizing We're On Our Own

We no longer care who's behind the curtain because we're in charge of our own lives now.

The Good News is people are realizing We're On Our Own and starting to take action accordingly.

This article describes how people in one low-income county are localizing self-reliance rather than remain dependent on government subsidies.

The War on Poverty Failed Them--and They're No Longer Waiting For Help (wsj.com, paywalled) Federal money and projects have come and gone so many times that McDowell County locals have little faith in the government to restore their fortunes; 'We're on our own.'

Here in the heart of America's War on Poverty, some two-thirds of households with children still get food stamps, among the nation's highest rates, and the estimated median household income hovers around $35,000. Nonfarm employment has plummeted 78% since 1975, according to data compiled by West Virginia University economist John Deskins, as the coal that once powered this rugged place is now mostly mined with machines, if at all, and no other industry has replaced it. The county has lost 67% of its residents over those years, the largest drop in West Virginia, its population dwindling from just over 51,000 to roughly 17,000.

With little faith left in government to break the cycle of poverty, those who remain say it'ss up to them to forge a brighter economic path.

"We're on our own," said Jason Tartt. "Nobody's coming down here to save us."

Tartt, the grandson of coal miners, is teaching locals, including retired miners and those recovering from opioid addiction, how to farm the forested hillsides. Down the winding, two-lane roads that connect communities, a pastor organizes bottled-water drives for neighbors whose tap water is undrinkable, while the local utility patches together funding for long-term solutions. A tiny, former coal town is trying to transform a shuttered Walmart into a new factory it hopes will jolt the local economy.

Their efforts are small in comparison to the government programs that have sought to revive McDowell County, and can't make up for the prosperity that slipped away when the coal companies left. But they are spurring hope for renewal in some places, driven by one of the few constants here: resilience.

Nobody includes not just the federal government; it also includes Corporate America. Walmart pulls the plug on under-performing stores regardless of their local importance, and the rest of Corporate America is equally focused on next quarter's profits.

Dependence breeds helplessness, passivity, addiction and the decay of community. There are alternatives. Those seeking to maintain the status quo dismiss alternatives that don't require Wall Street, federal monies and Corporate America ownership because those institutions are buttering their bread.

But out in the real world, there are alternatives--underfunded, dismissed as impractical, etc., but real nonetheless, for example: Regenerative Farmers of America (6:19 minutes) (via Chad D.)

As I observe in my book on Self-Reliance in the 21st Century, we all have to start somewhere, and as the Chinese saying put it, the journey of a thousand miles starts with the first step. (A thousand li in the original, of course.)

Self-reliance sounds like an individual journey, but it's fundamentally a community effort as no one person can fulfill every function. As the number of people participating expands, the self-reliance of each participant expands, too.

Those working on self-reliance tend to lead by example. Get the work done, share the results, keep moving forward. There's no jetting around to meetings and conferences, just do the work on the ground. Get it done, learn from mistakes and from others' experiences, experiment to identify what works best in local conditions.

When we realize we really are on our own, things change for the better. We start taking full responsibility for our health, work, goals and integrity. We start thinking through Plans A, B, and if things unravel, Plan C. We lose interest in addictive technologies and substances and other hindrances. We start noticing improvements and taking well-earned pride in them.

We no longer care who's behind the curtain because we're in charge of our own lives now.




Podcasts: Insane Financial Imbalances and a Social Revolution (36:34 min)

Ultra-Processed Life: Unhealthy, Addictive, Deranging, Artificial (36 min)

My new book Investing In Revolution is available at a 10% discount ($18 for the paperback, $24 for the hardcover and $8.95 for the ebook edition). Introduction (free)


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