A first definition and first warning

The warning is that (1) the writer has an economics degree from a university (London UK) and (2) this tare or handicap (an economics degree) is something he has lived with a long time, and takes little account of (economics, that is).

The first real definition is what 'likely' means. Likely, here, means possible-to-probable.

What does 1929 "style" mean ?

This is important.

Since around 1870-90 stock market or bourse crashes (such as those of 1873, 1882-84, 1890-93, and 1900-03) have tended to get more uncontrolled, longer and deeper - measured by the loss of total notional or fictional 'value', using yardsticks like the time taken to claw back the lost 'value', or the size of the notional loss relative to GNP. But this brings in PPP or 'purchasing power parity' corrections for measuring one crash, in one decade or era, and another. How do you value an 1870 dollar against a 2003 dollar? Or compare a Reichen mark against a Renten mark, and a Deutschemark of 2002 ? (Before they disappeared and were replaced by Euros).

None of this is easy. Bill Gates likes to say that if technology progress in automobiles had kept pace (he meant to say/ was comparable) with technology progress in PCs then a family auto of today which cost $5000 in 1979 would now cost $15 and do 150 miles-per-gallon. Thanks to the Cheap Oil interval of 1986-99 and the Sunset Commodity lie (oil and gas are throwaway, old time resources for hamburger flipping, derivatives trading modern consumer citizens) new car fuel economy averages in the US and several other OECD countries are at 1970 levels, today. Also, we could ask if those PC-style autos work like 'Windows'? First you turn the motor on, push the 'Start' button, and only then you can turn it off - what could be more logical? Hey, wait a minute, the motor was already running!

The bottom line is how to compare value with changing money yardsticks. It is difficult to compare a 1979 dollar with a 2003 dollar, and even this latter is changing before your eyes. January 2003 dollars, and June 2003 dollars, against Euros, are already 12%-15% different......

We can however say that in 2003 dollars the 1929 crash wiped off, destroyed, or made to disappear notional or paper 'value' estimated (by J K Galbraith and other experts) at about $ 1 500 Billion.

And we can say the 1987 bourse crash destroyed at least $ 2 400 Billion of notional 'value'.

And the 2000-02 crash annihilated about $ 6 000 Billion of notional 'value', some of which has magically reappeared thanks to the 'Baghdad Bounce', which is more of a swansong than a victory chant, we may soon discover.

However, the essential factor is that the 1929 crash was very different to and from the 1987 and 2000-02 crashes.

Why and how was the 1929 crash different ?

After the 1929 crash, but more precisely after the 1929-31 sequence of economic meltdown triggered by the bourse crash, there was no bounce back or rebound in the Real Economy, on which the bourse machine feeds, reflects, steers, plays with, and pumps funds from rather than the opposite direction.

That is, the 1929 crash transmitted through the various outer sheaths or layers of the Real Economy, and impacted it. Through 1929-35 or 1929-36 in some countries of the "civilized world" there were unremitting falls of activity in 'key sectors'.

The uncivilized world was however less than concerned by the event - it gained.(A. Gunder Frank, S. Amin and suchlike will give you a Marxist Economics spin on the related and unrelated sequences of economic change governing metropole-colony relations). Simple facts and figures show considerable economic growth in the 'colonial South' of the 1929-39 period.

The Real Economy impacted

We can take 'leading indicators' in any the rich world countries of the time. In the period of 1929-36 there were sheer and stark falls, for example a fall in industrial production by 40%-50%. A reduction in new house starts by 60%-70%. A reduction in cars manufactured and sold by 60%-75%. A reduction in new steel produced and cables laid and drawn by 60%-75%. A reduction in ships built and operated by 50%-70%.

Depending on country and on reference dates, eg. 1927 or 1928 against 1933, or eg. 1925-28 average against 1931-34 average. Overall, through 1929-36, falls in activity/output were around 60%-90% by country and by sector. Unemployment rates were up to 25%-40%, not in Albania 2003 but throughout Western Europe in 1933. The young reporter and writer George Orwell wrote flowing tales of this massive misery decreed for and by Liberal good management of the economy and defence of Strong Money.

Needless to say food production didn't fall by 60%-90%. Human beings need to feed themselves even when destroying notional or paper 'value' and deciding not to work - but there were 10%-15% falls in food produced, all the same. An increasingly popular, tub thumping set of politicians naturally emerged and very like the GW Bush regime, but called Mussolini and Hitler. These two leaders applied Keynesian economic recovery; the Military Keynesian solution was found to yield big popular voting support and very fast falls in unemployment through building weapons and preparing for war. Both of these fully-voted, fully-democratic leaders of the West had No Alternative but to crank up wars, the bigger the better. Democracy has the word 'demos' as a stem. it gives us Demonic and Demagogic as well as Democracy.

OIL PRICES FELL, but we will get onto that subject later on.

What matters is the following:

1929 impacted the Real Economy. The bourse crashed, and so did the Real Economy. The crash, which was fiercest through about Nov. 1929-Nov. 1930, with a rapid loss of at least 50% of initial paper 'value', trimmed paper values on all civilized world bourses by up to 65%-75%, and started with a huge cut (at least 30%) in just the first week or two, rapidly achieving a 50%+ fall in notional or paper 'value' (that is notional capitalization).

Unlike 1987, which also had huge and fast cuts in the notional 'value' pile in just a week, the 1929 crash kept on keeping on. It steamrolled into the Real Economy, creating an unstoppable reduction - contraction - of economic activity. Neither the paper economy bourse, or the real economy bounced back. They went down, and stayed down.

None of that happened in 1987 and 2000-02, which of course brings up the simple question: Why ?

Let us terminate this first part by a few considerations of what would constitute the initial part of a 1929-style crash in October 2003. The lead bourse would of course be the NYSE, as in 1929, 1987 or 2000-02.

As noted by Mark Jones in 'Battle of the Titans' ('The Final Energy Crisis', Pluto Press, forthcoming)/

In purely cyclic terms, bourse dynamics might set a period of over 15 years before the DJ index claws back to 10,000 again; through 2002 some US stock exchange analysts have waved the spectre of the Dow plunging to under 400 points and staying there 'for some years'. In fact, any protracted bourse crisis on Wall street with the index hitting even 4000 points will trigger panic equivalent to the 1929 crash, the post 1929 collapse of the fantasy paper economy entraining a 6-year, world-wide depression of the real economy. Optimists argue that even in the event of a paper economy meltdown this will not harm the real economy because mistakes made in the 1930s will not be repeated. That is: protectionism, futile and counter-productive attempts to balance budgets, monetarist rivalries, the deflationary gold standard, etc.

If the DJIA index fell to 4000 from its present 9100-odd, this would represent a 50%+ loss. If at least 30%-40% was slashed in a single week, this would constitute a '1929-style' (and 1987-style) bourse crash. Whether this would go on to trigger a Real Economy crash, that is 1929-36 style contraction, is another question that is discussed below.

PART 2

A few theoretical asides

No major attention is given here to 'Derivatives and Creative Financial Instruments' and their trading. This could be a lapsus. There are unbelievable quantities of 'overhang' due to derivatives - shadow 'value' always seeking redemption - that may total over $100 000 Billion 'notional'. In some cases, eg. derivatives based on 'emerging country debt', these hang on a knife edge, today as in 1998. However, concerning the biggest 'underlying security' in emerging country debt instrument trading, the Russian economy, higher oil prices ( which might serve as trigger for an October 2003 bourse crash) are at present high enough to prevent the Russian ruble from meltdown. Another big 'underlying security' in the emerging country debt market, Venezuela, is in exactly the same position. For the moment, neither Russia nor Venezuela are likely to bring the emerging country debt instrument market, and its own derivatives market, tumbling and crashing.

Cyclic factors

We have to cite Kondratiev

What counts is that Kondratiev, and especially Slutsky counted cycles, or waves using scarce concealed numerology with a base 9. Logic for this is found in the "near 10-year business cycle", or "Juglar commodity price cycle", or any other near-10 year cycle you like, but Kondratiev and Slutsky used rather precise 9-year cycles, and multiples of 9-year cycles.

Dating the cycles

K-cycles (Kondratiev) can extend to almost any multiple of 9 years, but not above (about) 390 years. The best or reference measure is - annual economic growth trends. Kondratiev posits a sort of Big Bang, he dates to around 1605. Between about 1560 and about 1605, due to colonial pillage or 'vibrant exploration' in Central and Southern America, perhaps 50 000 tons of gold, and 450 000 tons of silver washed up on Europe's shores. Their economies have never recovered.

This is not accepted by a certain Eric von Baranov (Editor of The Kondratiev-cycle Theory Letter)(Internet site). He denies that Kondratiev ever said or implied there was some initial Big Bang, around 1605, and all 'waves' started from that moment and will go on forever.

Von Baranov also says (on Peak Oil) that (I cite) "all the nuclear wastes from a lifetime's energy supply to an average California household today, could be packed in a match box" Breaking technology in the nuclear field will enable the Final Wave (he goes on to say), the ultimate Peak Growth the world economy has ever seen, let alone imagined..... Keep that matchbox away from me.

That said, major recent Kondratiev cycles that I count are 1924-51, then 1951-78, and 1978-2005.

Down-Up-Down. And 2005-2032 will be Up, but we could have 're-figured secular notions of growth', and even more surely what 'wealth' means by then.....The Final Wave will come, we will surf on that one, KFCs to the right, Windows to the left. The cliff edge straight ahead....

Each K-cycle contains/is made up of 6 x 4.5-year cycles. These can be arranged as an 18-year Main Sequence, with 2 short cycles leading and lagging, playing in and playing out. They also can be sliced into 3 x 9-year waves. Feel free - Kondratiev certainly was!

So let us take the 1978-82(July) short downtrending cycle.
Theoretically, there should have been noticeable, even large falls in economic growth rates. Check out economic growth rates for civilized countries in 1978-82 ! In this period the retrenchment and recovery following the first Oil Shock gave way to the fantastic plunge in economic growth brought on by the Ranting Duo of R Reagan and M Thatcher cranking interest rates into the stratosphere ('good monetary management') as a measured response to the second Oil Shock of the bearded Ayatollah and his cheering students taking US embassy CIA personnel hostage in Tehran (and cutting world oil supply by about 6% for several months).

Wiseacres (wise hectares ?) will tell us/ This crash in annual and trend economic growth rates was due to Demon Petroleum. Oil prices, in 2003 dollars hit $103/barrel in last quarter 1979/ first quarter 1980.

Growth could only fall because "High oil prices hurt economic growth".
Ask regular grade energy economics 'experts' such as the well-paid Daniel Yergin of Cambridge Energy about that. He is really nicely paid. He will assure you, as well as George W Bush, that oil prices above about $40/barrel will have sombre impacts on economic growth (the funny thing is, economic growth already was pretty sickly, Germany is already in recession, for example).

Cyclic fall in annual average economic growth rates

I suggest the fall in economic growth rates through 1978-82 was cyclic and would - anyway - have happened. The Oil Panic following the Tehran Show in 1979 (the CIA guys with designer eyemuffs or Santana-style headbands, the yellow ribbons...the Reagan election show and all...) only increased it. A very important caveat is that oil prices, themselves, are virtually nothing at all to do with economic growth. High oil prices can enable and speed world economic growth, surely. However the subject is a sideshow to the present question of cyclic influences.
I will be delighted to make a paid study of the subject.

It is useful to have an idea of what can be called cyclic optimum economic growth rates. At the time (around the 1972-85 period) these were likely 3.75% annual real GDP for OECD countries, but have considerably fallen from about 1985. After 1985, due to falling oil and commodity (real resource) prices, and the Neoliberal 'sloppy economy' context in most OECD countries, and a host of other growth-cutting factors we will not discuss here, the capacity for economic growth has most certainly fallen. The cyclic optimum may now be below 2% annual, in part because we are at the end of a long downtrending cycle, of 1978-2005.

Real world average annual growth rates for OECD countries (real GDP) are now not much above 1.5%. For 2003, growth of real GDP for some OECD economies will scrape zero. Germany may attain 0.3% ; France may achieve 0.8% ; Japan may attain 0.4%. Italy will have problems beating 0.5% growth, Spain and UK may achieve 0.8% - 1%, optimists in the USA can talk about 1.75% growth of real GDP on an annualized base, but the real outturn could scrape 1%. Oil exporting Norway will achieve perhaps 4.5%. Oil importing China will lkely beat 7.5%, and oil importing India will grow by about 5%.

Try this another way round

In a short UPtrending cycle growth rates should increase

Economic growth rates should have uptrended in 1982(July) - 1987. And they really did! In 1984 the US recorded its highest-ever growth in the entire 1945-2003 period. This record growth surprised everyone and delighted the backers of Ronnie Reagan in his bid for re-election!
Oil prices were $57-$65/barrel in 2003 dollars that year. Mr Yergin and similar well-paid 'respected' look-alikes will tell you how much "High oil prices hurt growth". Very satirical.

There is no problem coming forward.

1987-1991 (July) was downtrending. Growth fell. Despite the heroic Gulf War-1 and about 150 000 Iraqi dead in a great colonial adventure called Desert Storm (some 300 tons of depleted uranium was used by the war criminals), and the cream on the cherry pie called Cheap Oil, there was no upsurge at all in economic growth. G Bush-1 was not re-elected.

The 1991(July)-1996 cycle was uptrending.
And economic growth rates trended up - a bit. They were already suffering heavy collateral damage from Neoliberal Nostrums and notions of what constitutes good economic management. There was the de-structuring of the world economy (called Globalization), in the richworld there was an aging fascist-inclined "middle class" voting for war criminals who delivered Cheap Oil (because it " ensures economic growth "), creating an extremist political elite of the Bush 2 type, and their lookalikes in other ex-civilized countries (formerly called 'democracies'). Oil and real resource prices were much too low to rescue any growth. The Clinton Boom was a classic paper (and electronic) boom, as noted by Michael Hudson, and had no special significance because it was 'underlain' or pegged on the vehicle of dotcom, hi-tech and other fetish symbols of the 'postindustrial' economy/

" The bubble of the 1990s has been called a dot.com bubble, an internet bubble and other forms of technological bubble, but technology was only a vehicle for what basically was a financial bubble. It was not powered by industrial engineering as much as by " financial engineering, " manipulating corporate balance sheets in a Japanese... (zaibatsu style manner). Investment bankers treated telecoms and kindred companies as vehicles to float their stock, take huge cuts for themselves, and then make yet more money on first-day stock run-ups''. M Hudson in interview with Standard Schaefer, Counterpunch, July 2003 (Web site www.counterpunch.org).

The boom lasted long, and the bubble took long to deflate because governments were not only aiding the banks, insurance and other financial players to make safe killings with ever blinder-eyed stock market and accountancy practices 'vetting', but were themselves raiding company pensions funds (through encouraging or forcing so-called Money Managers to play the stock exchange with paid-in pension funds and then taking taxes off the profits made by those bourse players). These huge new flows of real funds aspired by the bourse casino - hilariously sold to the voting masses as the "Bourse for All" and the ideal way to plan one's retirement funding - were given that essential if tiny part of reality by 'surprising' economic growth rates of about 2%-per-year. We should note that the Clinton Boom 10%-a-year inflating of the paper bubble, bit the dust at the best cyclic opportunity, that is right at the end of the next down-trending segment or wave, in 2000. Its demise was set in (cyclic) stone from almost the day GW Bush stepped into office !

Heading for a hiding

The 1996-2000(July) cycle was downtrending. Those who might claim, by intelligent afterthought, that the Clinton Boom was 'especially unreal' could compare it with equity numbers growth through 1925-29 and 1985-87. Or they could try the Paris Bourse explosion through 1719-21, in which 4000%-per-year growth of notional 'value' was obtained, through a scam operated by John Law - using a 'financiarization' process to drain real (gold) resources to the King's bankrupt treasury in return for paper equity, on the lure of massive profits 'surely' arising from the Mississippi Company. This Enron of the day bit the dust when major players got too greedy and siphoned off too much in the way of real funds. No bubble can last too long, however, without some real growth of the real economy. Through 1996-99 real economy growth rates trended down, and by at latest early 2000 were heading towards the near recession that goes with Neoliberal no-investment economics like a hand in glove.

The current short cycle

That leaves us in the 2000(July)- 2005 cycle, right now. This is an uptrending short cycle. Just like in 1925-1929.

There are only a few months of error-margin in this cycle-based analysis. Briefly, the 1929 crash happened just after the entry to a long downtrending sequence, and we are well into the second part of a short uptrending cycle, right at the end of a long downtrending wave. Note that 1924-29 was right at the beginning of a long downtrending cycle, and we are very close to the end of a long downtrending cycle.

We are still in a long downtrend. It ends July 2005. Like Eric von Baranov trumpets, the Long Wave that is coming will be Uptrending (and he says nuclear powered). But that is too far ahead to feedback into the present and rescue nice clean-fingernail bourse players from an Oct 03 Crash.

It could happen - on cyclic trends.

PART 3

Do cycles even exist ?

Note that the OECD Secretariat, right up to the later 1990s and in its 'Historical Statistics' series of publications, included a 15-20 page section titled "Cyclical behaviour of the OECD economies". The dating base of this was a 4.8-year cycle, that is 5 complete cycles in 24 years. For all members of the OECD, including the G-7 big economies, these official OECD cyclic economic diagrams show sometimes very, very tight fits with a cycle of about 4.5-years.

If we go along with Kondratiev, who argued sometimes "the longer the cycle, the better its predictive capability", and we take a 27-year major cycle like discussed in Part 2 (that is an 18-year main sequence, and 2 x 4.5-year 'lead-in and lead-out' cycles) we get the last 4.5-year cycle as 2001 (July) - 2005. Like the very first lead-in of 1978-1982 (July), the lead out is weakly uptrending. The overall or main sequence trend remains downward. The half-way point in the last lead-out short cycle is 2001.5 + 2.25 = 2003.75

That is September/October 2003.

As a final point, note that 'changeover points' are just right for a bourse crash ! Nothing in Kondratiev says when or even if a bourse crash will happen. But this conjunction of cyclic trends, around October 2003, does nothing at all to oppose a crash, and could even 'enable' or 'potentiate' it.

Oil prices

In 2003 dollars, the oil price through the 1920s showed some agitation. Around 1927 it had reached a level of about $18-per-barrel. By 1929 it was already shrinking quite fast. Apart from 'demand destruction' (the new, cute word for economic recession and stagnation), that period was the first high point of world oil discovery - with rates of annual additions in relation to annual oil consumption being the highest ever (and much higher than in the second high point for discovery in volume terms - the early 1960s). In the 1925-32 period annual oil discoveries were up to 40-50 Bn barrels in a few lucky years - while annual world production and consumption was well below 4 Bn barrels. That is, every year for several years, the world found and proved 10 years or more of oil requirements. Since the 1990s the world uses at least 4 times more than it finds, each year.Through June 2002-June 2003, using IEA figures, oil production by the 3-biggest oil producers in the OECD bloc (USA, Norway and UK) decreased by a whopping 801,000 barrels-per-day. The late 1920s conjunction of rising discoveries and falling demand dealt a powerful blow to oil prices. In current dollars, their fall stabilized around $1.80-per-barrel in the 1933-36 period.

World oil consumption at the time was way below 12 Mbd annual. Oil intensity of economic output, even in the civilized world, was way below today (under one-fifth). Can we therefore scratch oil prices from the list of possible or potential causes of the 29 crash ?

Probably yes. If you have other ideas or opinion on the subject just say so.

Conversely, oil price falls - a crash of oil prices, also called the 1986 Anti Shock - almost certainly helped trigger, or intensified the 1987 stock market crash. This is not just my opinion. There is plenty of Web material on the subject.

Basically, it can be explained like this.

"Through 1986, from December 1985 through August 1986, oil prices were nearly divided by three, that is fell by about 65% in 8 months, to a low of around $11.50/barrel in dollars of 1986, for many light blends. Expressed in dollars of 2003 the price fall was from a year peak of about $52-per-barrel to around $19.50/bbl. Absolutely no spontaneous, self-reinforcing and of course non-inflationary increment to economic growth was recorded in any OECD country.

Conversely, unrestricted double-digit growth of stock market 'value', without corresponding growth in the real economy certainly has strong impacts. While the 1986 oil price crash was a non event in economic growth terms, exactly as the fall in prices after Desert Storm in 1991, unrealistic growth of stock market indices in 1986-87 was fuelled and comforted by the oil price crash (or 'Anti Shock'). Both in bourse mythology and in fact any long bull market always has its Dark Twin waiting, and this took the shape of the October 1987 US, and then world stock market crash. Stock market capitalization losses in 1987, that is loss of nominal or paper 'value' were estimated at around $ 2 400 Billion, in today's dollars. " From 'Why We Need $70/bbl Oil' by A McKillop, various Web sites.(Note that some Webmasters, without asking/informing me changed the number! They put "$50/bbl").

Oil prices and the 2000-02 crash

Did oil prices have anything to do with the 2000-02 'slow motion crash' ? The biggest yet in loss of notional 'value', but also so slow we can scratch it out as a 'crash', if we want, and call it a 'secular adjustment', or 'overdue correction' or any kind of other term we like if the word 'crash' hurts too much. Plenty of ex post facto bourse and business gurus are out there telling us - retrospectively - that Yes! the 2000-02 crash correction was triggered by tripled oil prices through late 1998-early 2000. Some others, to be more US-oriented, have explained the crash as due to leaping natural gas prices.

One example of these hooray henrys that - retrospectively - discover the Oil Link in the biggest-ever fall in stock market capitalization is US Federal Reserve Governor Laurence H. Meyer. In a dinner debate at the New York Association for Business Economics and The Downtown Economists, New York, June 6, 2001, he manfully asserted:

"Energy prices rose throughout 1999 and 2000. Oil prices shot up in the fall and natural gas prices soared late last year just as oil prices (had begun) to recede. The higher energy prices undermined consumers' purchasing power''.

That is, they stopped buying equities just like that, and started sulking...the crash was inevitable.

The funny thing is that all this retrospective wisdom from retrospective experts didnt hit the Street (wall) or any other bourse places until well into 2001. Equities had already been falling like dandruff or autumn leaves for months on end. Indeed, the crash was waiting for its second coming - also called IX/XI or Sept 11 - which in pure cyclic terms should NOT have happened. Oil prices had tripled in 1998-2000. Tripled from almost nothing, to just about something, we have to add. The gurus don't add that, and would accuse me/you of madness if we argued that oil prices turned up at a critical cyclic moment - just as the uptrending 2000 (July)-2005 cycle was beginning, and turned up to enable growth.

In late 1998/early 1999 the oil price had tested a real floor - about $10-per-barrel. At that price, you might as well give it away or build Memorial Baths for professor M A Adelman to float in, like some oiled seabird (The Albatross of Bad Augury not the Stormy Petrel).

Morris Adelman has the very dubious honour of being the professor who can 'prove' oil is worth $2.50-per-barrel right up to the day the very last barrel was actually pumped. He is therefore a very great professor. ($2.50 in dollars of 1972 it goes without saying - or at least it goes without saying to Prof M A Adelman)

How did the Oil Price 'trigger' for bourse crashes work out in all this?

1929/ Not at all. Not possible to incriminate oil.
1987/ Very certainly yes. Too-LOW oil prices certainly helped trigger or intensify the crash, by helping players better fool themselves into thinking profits would also gusher from the manna of Cheap Oil. 2000-02/ Probably not, and only retrospectively even for gurus and nicely employed, well-fed spokespersons of the New American Century (US Fed, Heritage Foundation, etc).

Other Oil Linked crashes

Surely, in 1973-75 and in 1979-81 there were pretty big 'corrections' of bourse numbers, and these were surely 'linked to oil price changes', but nobody takes much notice of these relatively 'modest' crashlets or slides in bourse value. We are talking about real-and-serious stock market crashes.

PART 4

THE TRIGGER(s)

We didn't even define what constitutes a bourse "crash"
Lets try: At least 50%-60% loss of nominal 'value', measured by the index number on Day 1 falling to one-half the Day 1 figure, in no more than 10 days. A real good, fast-acting crash like 1987 can erase nearly 60% in 5 days.

This underlines the 2000-02 'correction' was only a crash by stock market capitalization loss, not at all by its rapidity.

But this brings us back to what was said in Part 1
"1929 was very different to and from the 1987 and 2000-02 crashes". Why and how ? . . . .the 1929 crash transmitted through the various outer sheaths or layers of the Real Economy, impacted it, and through 1929-35 or 1929-36 in some countries of the "civilized world" there was unremitting falls of economic activity in 'key sectors'." These falls easily attained 60%-90% cuts in activity over 1929-36, by sector and by country.

This did not happen in 1987, and only weakly happened in 2000-02 (eg. airlines, tourism, some insurance companies). The Real Economy kept on sputtering along, sucking down 78 Million barrels/day of oil, in a miracle of de-connection with the paper bourse ! Gosh, could it be they aint connected at all, really? Note also the role of world trade, which fell like a stone in 1929-31 at the beginning of the crisis. In 1987 there was little or no fall in world (physical trade) volumes. Ditto for 2000-02.

TRIGGERS

Quite simply there is, more often than not, NO single trigger at all. This was the case in 1929, 1987 and 2000. You can check out all the books on 1929 that you like - you will find many trigger explanations, and even descriptions of many so-called 'triggers' - but no one of them stands up to further examination as a worthy candidate for The Trigger.

J K Galbraith in 'The Great Crash' (Houghton Mifflin, 1961), sets up 5 different triggers for 1929, and knocks each one them down as totally inadequate, by itself, to explain all. Conversely, the Oil Shocks of 1973-74 and 1979-81 brought on substantial losses of notional 'value' on world bourses - but were not crashes on our definition of 'at least 60% loss in preferably less than 2 weeks'.

Note the key month of October. Web searches on this will give you thousands of good, bad and ugly 'explanations' for exactly why bourse crashes tend to start in October. To be generous, we could add +1 or -1 months to our forecast date, that is September-November 2003 offering the ripest and best chances for a 'classic' and serious bourse rout.

AN OIL SHOCK IN JULY-SEPT 03 COULD BE A HANDY EXCUSE FOR THE CRASH OF OCTOBER 2003

That is, say an Oil Shock hits by October 2003. The bourse crashes - but it was already Kondratiev-timed to melt down! The crash didnt need the Oil Shock trigger - it had full functional autonomy, it was timed for Oct 03, by a mysterious conjunction of subtle, multivalent factors, just like 1929 or 1987 or the 2000 kick-off to the slowest crash in a long time (given new impetus, of course, by IX/XI). On cyclic grounds, the 2000-01 crash should have stopped by mid-2001, it was 'timed' to stop (on cyclic grounds) by about July-Aug 01. It in fact got overridden by the CIA and their Bearded Loony.

This proves what you all know deep down: any kind of random event can be used to talk down bourse numbers, as well as talk them up. Whether its a bad set of planetary conjunctions at the next Triple Witching Hour, Bush actually and seriously choking on a pretzel (going down and staying down), an asteroid hit, or just frayed nerves and very bad trade figures, anything can set off a bourse crash. This is the finest, most scientific and rational management of the economy that is known! If you are against it, you are for Pol Pot or Stalin. So, if there is an Oil Shock around October 2003, and the bourses crash, nobody will ever believe you, and even less me when or if we waste our breath suggesting that "the Oct 03 crash could have happened anyway, without an Oil Shock trigger".

Oil Shock trigger - what would be needed?

It has to be big, usually gory, anti-American, and cut oil supplies much more than 5%, preferably for several months.

One great candidate for all 4 of those would be The Fall Of the House of Saud. The House of Saud is on shaky foundations, subject to saltwater intrusions like the Ghawar field (or at least Islamist infusions), and pumping like crazy just to stand still in the race against demographic explosion and economic implosion. It could go anytime, but why this October?

Simultaneous outage of Nigeria + Venezuela. Nigeria doesn't need any help to 'disappear' from the oil pumping fraternity for a while. Venezuela would however need plenty of 'help' to repeat last winter's strike - it is highly doubtful the Mussolini-inspired New Rome clowns around Bush would go for the Chavez Ouster number a second time around, those Gulf region States with refineries needing Venezuelan crude will quickly let the Bush Bunch know about that.

Iran being regime changed, by those same sparkling strategy boys (Perle-Rumsfeld-Wolfowitz) might crank up oil prices quite a bit, but not certainly and surely to Oil Shock levels. That said, a few thousand Tomahawks and a few hundred thousand grunts offloaded into I-ran would likely push oil prices up at least $10-a-barrel. We are looking for $20 plus.

Definition of Oil Shock - a rise in oil price by at least 75% in under 2 weeks from the date on which The Market stops listening to cheap oil counter-propaganda, and starts cranking up prices by $1.50 and $2-a-day. From a $30 per barrel base this would give $52-per-barrel. In fact, for wall-to-wall hysteria, $50 will be fine.

One other interesting 'supply pinch' potential, with a low body count, would be a steady rising number of small incidents and outages, with no remittance or recovery, extending over the rest of this Summer, to Oct 03. This could include accidents, some sabotage (in Iraq for sure),maintenance and upkeep problems or incidents, maybe hurricanes and quakes, etc. We can also note - though the OECD's IEA cheap energy watchdog only put this out as a footnote - that the OECD's 3-biggest oil producers (US, Norway, UK) lost a combined 801,000 barrels-per-day of production capacity in June 02/June 03 through the very simple fact of depletion. TOTAL LOSS OF SUPPLY NEEDED IS ABOUT 3.75 - 4.5 Mbd FOR AT LEAST 1 MONTH, and for real impact preferably 2 - 3 months.

The Real Impact of Oil Price Rises

As is getting a little better known, or at least talked about (since price rises are inevitable) oil prices around $50-$60/bbl will explode the lead hood of deflation that drags down economic growth! But the stimulus will take 6 months to 1 year to start acting. This will give plenty of time for a clean out of the bourse casinos. First the panic, and then back to business.

Can an Oil Shock PREVENT bourse crash?

This is a fascinating question! No way can it be thrown out from discussion. The price level attained, how long prices hold up to high levels, the political chemistry surrounding the price rise - all these things will decide yay or nay.

Say oil prices only edged up by smallish day increments (just $0.50/bbl a day, several days each week, for several weeks and without many fallbacks).

Also say the movement stopped around $49.95/bbl, it didn't crash the psychological barrier of $50-per-barrel. Nor did prices fall back.

In such case it would be hard to call if the hooray henrys would feel sufficiently justified, completely gung-ho sure of their destroying mission and tear down the temple, pulling the rug on those stolid and solid oil Consumer Citizen-Investors of Suburbania. Maybe the bourse would just go sideways (like it is right now, around late June 03), the NYSE would be 'trimmed' to say 5000 points over a few weeks, (not by 5k or 6k points) then start inching back. The real Fear & Loathing level for the DJIA, about 4000 points (or 3999) would be avoided. Wall to wall panic wouldn't be necessary.

In terms of impacts on the Real Economy there is no problem at all to state, formally, that oil price levels up to $50/bbl would be good and hardly even inflationary.

PART 5

RECAP ON CYCLES

What are "cycles" anyway? Who do they affect?

Unbelievable quantities of theory exists about economic waves, cycles or periodic variation. Yet the economists who first wrote about cycles - Kondratiev, Schumpeter, Slutsky (apologies to any others who should have been mentioned) - had very different spins on "what cycles mean".

During the 1950s and 1960s there was a concerted attempt by Young Turk mostly American economists, later on called Neoliberals, and after that New Economists (most of them being over 70 years age, now) to deny, disprove or more simply reject any existence of economic cycles. Business cycle - yes. Economic cycle - no.

Schumpeter can be mentioned in the presence of a Neolib/New Economist without having your ear filled with postillons (spittle). Schumpeter is the 'Father of the Business Cycle'. His name can be mentioned in front of MBA fodder in upmarket, fee-paying universities, without you being shown the door. But dont bother with Kondratiev, that is 'freaky' stuff and - hilariously - Kondratiev is sometimes called "the Marxist economist" by eager right wing creatures formerly called Yuppies. Kondratiev died in a Stalin forced labour camp for Thought Crime.

Schumpeter didnt have much against, or for Kondratiev. Their slant was different. Schumpeter had no problem in deciding if Long Depressions can happen. His answer was Yes.

Even here, those 3 words have 'special meanings'. What the 1980-82 period showed in the civilized world is that what happens in dozens of countries, right now, and in accelerating fashion since the 1980s, all over the uncivilized world - that is economic meltdown - can and does happen in the squeakiest clean, modern, hi-tech business-oriented societies. That is strong contraction. Already we have a nice shiny new word for this: demand destruction. This is a lousy term! Contraction is much better. Demand will and can be UNdestroyed anytime. Pay $80-a-barrel for oil and you will see (just a few) Angolans riding in Mercedes Benz with several additional bodyguards wearing Taiwanese Rayban lookalikes. At $100/barrel they might have real Raybans

Un-destroying demand is pretty much like creating demand, and that takes us way back to Keynes and a whole lot further (to Turgot, for example). Contracting demand doesnt mean the same at all - it means that demand shrivels away, the interest wasnt there anymore, people dieoff or get pissed off. In polite words, this is "secular change" or "attitudinal change".

1929 triggered the Long Depression or Great Depression. In plenty of countries (Russia for example, most African countries, most of South America) the Long Depression has been about 1986-2000. Through the 1990s things only got worse. And worse.

The 1929-36 sequence made World War 2 inevitable. The Mussolini campaign of 1936 in Abyssinia (Ethiopia) bears plenty of resemblance to the Bush-Blair Iraq war. That is hysterical, racist, instant imperialist, with absolutely no concrete economic bottom line. Mussolini got nothing out of Destroying the Desert Dictator (or Negus) of Abyssinia, and the Bush-Blair crowd are doing a great job in destroying Iraqi oil production and export capacities (so far, a reduction from about 2.6 Mbd exports, to about 0.25 Mbd). We still await the Hitler lookalike, today.

The meltdown of country after country in Africa through the 1980s and 1990s has led to a Pan African War that rumbles around a large part of the continent, every day. Asking those guys to pump Cheap Oil as well as massacre each other may be stretching things for infrastructure destroyed, very poor countries which have - deliberately - been subjected to 'austerity cure' , or Belsen Economics since the mid-1980s (politely called 'structural adjustment'. Try articles by Greg Palast)

The message of what will happen IF there is an October 03 Crash can be summarized by this old dicton/

Possible and likely impacts from an Oct 03 crash: One to three years on

Geopolitical and multipolar seismicity - those fault lines already so clear under the surface can open up and swallow the Old World (the 1945-2000 world that the GWB regime is trying, insanely, to save or prevent collapse of, rather than de-energize it, transit to sustainability, and stop striking poses on the cliff edge).

Visitors to dieoff.com dont need details on the Breakup of the Postwar Pangean World, this article is about mechanisms.

An Oct 03 Crash will aid the necessary, inevitable de-Globalization and Increased Multipolarity that will surely come within a decade because any classic bourse crash will first-and-most impact the First World of US-Europe-Japan- traditional NICs (South Korea, Taiwan, Singapore etc).

You can easily check that by energy intensity per capita. Take out all the high energy economies, measured by (say) more than 5 to 7 barrels/head/year. These are the only economies and societies where there is enough cash left around to play bourse casino, the 'What If' paper flutter with electronic chips. Other economies and societies dont have the spare dimes or time for that.

That means The Rest, and that rest accounts - already - for at least 50% of world GNP

An October 03 Crash would have little impact on The Rest. Its a classic of 'Liberation Economics' (eg. Samir Amin, Gunder Frank, I Wallerstein, etc), that is/ When the First World does badly, The Rest does well. In fact, the analytic base of this is 1930s and 1940s colonial struggle and emerging Cold War standoff between US/Europe/Japan and the 'traditional marxist block' - USSR and China - with a bunch of bystanders vaguely called the 3rd World (India, Indonesia, Pakistan, the Arab world, Africa, Latin America, and a few others). At the time, all these economies were below about $400/capita annual GNP in dollars of today. Their oil consumption was virtually zero. In economic terms, the Long Depression of the 1930s was very good news for plenty of the 3rd World. Not all but plenty.

This will be exactly the same again if an Oct 03 Crash happens and it is 1929-style, it will penetrate those outer shells, right through to the neutronic core, and economic contraction will happen, that is not only 'demand destruction' but also elimination of needs for, desires of, and equipment, buildings and infrastructures used in so-called "gainful economic activity". In other words: a self-feeding or high gain feedback demand and supply contraction process. A very Long Depression could generate inside the OECD, former richworld.

There is almost no limit at all on the DOWNside, just like on the UPside! Cycles work really well in BOTH directions. Through 1929-36 there were 60%-90% contractions in "key business and activity indicators", in plenty of civilized world countries. Plenty of The Rest, that is countries that were soon going to 'detach' through decolonization, experienced steady if not spectacular economic growth right through 1929-39 and into World War 2.

China, India, Brazil, Pakistan, Iran, Turkey - to name some very key players - will have a Sink-or-Swim choice. Go down with the First World, or separate.

They will separate. They will get autarchic. They will keep their own, internal-domestic economies going through Keynes-type programs, probably with a hard military edge. They will trade between themselves. Likely, too, the traditional NICs will break ranks with the Fist World OECD doing its Long Depression remake, and save their own economies by rejigging their manufacturing base to needs and opportunities of the Alternative First World (China, India, Brazil, etc)

Cycle abort

Just as probable, this sequence shorts out. The Alternate First World will save the Old First World like it already did in the 1980s through setting a floor to how much the First World can destroy demand (at the world level). In other words/ No real contraction. This could lead on to 'economy and social restructuring', which must come if only because of Peak Oil, but is not the subject of this discussion.

The Neoliberal Homeland and heartlands - no splendid isolation

Back in the early 1980s, the Reagan-Thatcher duo set out to destroy anything and everything that even smelled of "inflation". Money had to be 'saved', pronto. So they naturally turned their beady eyes on destroying the economy. To their New Economics advisers 25% unemployment was a tiny price to pay for "stability" . People who still had a job, and even a few jobless fools flocked to vote for this hunky dory policy.

Despite that cute bit of Frankenstein Economics (also called Voodoo Economic at the time), and in lightning speed in the one year 1983-84 the world economy turned around and pulled out of a Long Depression entry sequence. No Long Depression happened. There were floors to the falls in First World economic activity. One hard and certain floor was the Alternative First World. It was bashing metal consumer products, and later on electrons, that the former Richworld had - temporarily - decided was a yucky thing to do, while its Consumer Citizenry piled back into personal consumption like it was going out of style - which it is! There is no question the Neoliberal Homeland and heartlands are more economically fragile, de-structured, and ripe for root-and-branch change than ever in their history. A major bourse crash in Oct 03, with real sequels in te real economy, to a backdrop of coming Peak Oil may - we can hope - sound the wake up call.

Bottom line to all this

It is unlikely a 1929-style crash can happen because there will not be a Long Depression after the October 2003 crash. I could be wrong! There is no 'theoretical need' for the OECD Richworld to not slide into permanent recession (0%-1% annual real GDP growth, falling to -1% to -2% per year) and stay there. This could be the run up, continue long enough to join up with Peak Oil, after which incipient global economic collapse could be realised. But I doubt this a lot.

HOW TO MEASURE

This brings us back to one measuring rod - fossil energy supply and consumption. Any economic crash sequence can be measured by world oil and energy demand. We could have low annual oil and gas demand growth, even slight falls as we get to 2010. Prices, however, will go UP as world demand hits against physical limits on supply, the previous and artificially low oil and energy prices having disenabled investment in energy transition (to a low energy economy and society) and slowed or prevented development of nonoil/nongas alternatives on a serious and committed base. On the question of 'Did dirt cheap oil and low fossil energy prices disenable investment in alternatives to fossil fuels?' anybody who wants can check what has happened to investment in nuclear power since the Oil Price Crash of 1986. How are construction trends for nuclear power plants over the last 15+ years? The industry is dying on its feet! There is no time left left to create the Nuclear Nirvana - which is perhaps the sole thing we can be really thankful about.

Andrew McKillop

5 August 2003