Where is the economy going?
That is always an interesting question and even more so when we are clearly on a down trend although there have been one or two minor positive indicators.
The easy answer is that we can’t say. A more complex answer is that we can’t say but through the fog we can sort of see an outline..
I like to think the economy follows patterns similar to the stock and financial markets. Therefore technical analysis may offer some help. Technical analysis is easier in the markets because every transaction is recorded and we can see what is happening with some precision. We don’t have that option with the overall economy. Even if we could define all the economic transactions it’s not clear we would want everything we do recorded.
My favorite technical tool is the Elliott wave theory with its series of ups and downs and with another series within each ups and each downs. As you can imagine it can be somewhat complex. There’s a line that if you give three Elliott wave practitioners the same data they will come up with seven or eight different forecasts.
The part of this theory that I question is that each series has five legs.
Applying this theory to the economy the important thing is that there are going to be ups and downs and that there will be major changes in direction as well as minor changes.
It would appear there has recently been a major change from an up trend to a down trend. Even a lot of establishment economists are predicting the down trend will continue for some time.
So what will it take for there to be a major shift to another up turn?
My theory is that there are two things that causes the ups and downs. One is the availability of resources. As resources become scarcer or more difficult to extract this will have an impact on the overall economy until the new resources are found and become available. Another source of ups and downs may be complications in how the financial system works.
There is some probability the current downturn is caused by a shortage of resources to maintain seven billion people.
One thing that might turn the economy around is the discovery of another source of cheap energy and one which would not require a great deal of capital to exploit. Even then would the planet be able to support seven billion people?