Thank you to everyone who’s written to me after reading Akhil Patel and Dan Denning’s latest presentation.

If you haven’t read or watched it yet, you can catch up here. The idea is simple. Akhil is an expert in understanding the deep lying patterns within the economy. He believes there’s an 18-year cycle which repeats, over and over again.

It’s based on the concept of the economic rent. In very simple terms, this is the idea that the benefits of growth in the economy (whether generated by private or public investment) accrue ultimately to the owners of the land. Land prices capture increases in productivity, innovation, economic growth or infrastructure spending. They then drive a real estate speculation, easy credit, stock and commodity bubbles within the wider economy. Most people don’t understand this idea. Those that do can time their investments with what Akhil calls an “effortless advantage”.

Akhil’s ideas are certainly compelling. And his latest prediction – that the cycle dictates we’re on the verge of a major bull market in stocks – could be extremely profitable, if you act on what he has to say.

But that doesn’t mean to say you can’t challenge Akhil’s ideas. Lots of our readers do. I received one such email last week. Here’s what it had to say:

I read with interest your article today.

It is impossible to prove Akhil wrong as he has identified patterns from history and assumes the pattern will repeat. Only time will tell if he is right or wrong.

I would like to comment that at each of the cycles in history have all their own unique interpretation of cause and circumstance.

The 2008 crisis was very well predicted by the “Minsky Model” of financial instability, along with all the other booms and busts in our history. Unlike today’s economists, [Hyman] Minsky found a direct correlation between debt levels and financial instability. Minsky noted that speculative financing and Ponzi schemes were the most dangerous for creating instability.

I don’t know about you, but speculative financing and Ponzi schemes are at an all-time high with record debt associated with it. As a matter of fact, the Minsky Model is showing a major correction this year.

Minsky vs Akhil?

My money is on Minsky, purely because he found and explained the cycles in a manner that makes sense, particularly when you know that today’s so called ‘gurus’ of economics do not include debt levels into any calculation!!! We have Milton Friedman to thank for this who said:

“Similarly, let the number of dollars in existence be multiplied by 100; that, too, will have no other essential effect, provided that all other nominal magnitudes (prices of goods and services, and quantities of other assets and liabilities that are expressed in nominal terms) are also multiplied by 100.” Friedman [The Optimum Quantity of Money] (1969, p. 1).

If there were a planet on which all nominal magnitudes including debts were perfectly adjusted when inflation or deflation occurred, this statement, and the neutrality of money it supports, could be true. Since our planet is not such a planet, nominal monetary values can and do matter, because they are the link between financial commitments entered into in the past and our capacity to service them today and into the future.

I sent that note to Akhil, as I do all feedback about one of our experts’ ideas. Akhil took the time to write back. Here’s what he had to say:

Excellent observations.

I am flattered by any sentence that starts “Minsky vs Akhil”. 

Now, what Minsky didn’t see/understand is the economic rent. This is more fundamental than the nominal level of debt in society. Because most of the debt (ie, money) in society is created against the economic rent (which in layman’s terms is the price of property minus the replacement cost of the building sitting on it).

Minsky was essentially right. But his model is not dynamic enough because he didn’t consider formally the underlying forces that drove speculation (that leads to financial instability) in the first place. It takes time for:

i) the recovery to take place;

ii) the next cycle to start;

iii) new modes of business and wealth to be created;

iv) big programmes of public works to get everyone really enthusiastic for the future;

v) for these gains to be absorbed by the land (which eventually takes all of the surplus gains of economic development); and

vi) for an economy to reach a speculative peak and then for financial instability to kick in, leading to a collapse in asset values.

Minsky’s material is good on vi) as far as I understand but sadly doesn’t track i) to vi) satisfactorily to my mind. Nor can his hypothesis explain why, each time, prior to the collapse, the level of debt is so much larger before the collapse (hint: it is to do with the overall value of land – that is what drives the amount of debt created).

I would go so far as to say that if you don’t understand the land/rent side of things you can’t fully understand financial instability.

History shows that this process takes on average 18 years. 

The material I have shared with my readers helps to track this. So far everything is moving like clockwork. So you won’t have to wait, as your reader assumes, 18 years to know if I am right or not. It’s looking very likely for a repeat.

Yes, I agree that what people say about each cycle may be different. But that doesn’t change the fact that they fail to understand the key ingredient and that, because the underlying causes are the same, so are the effects. If a Minsky follower doesn’t view, say, what happened in the early 1990s as a repeat of 2008; or the mid-1970s; or, prior to WW2, the late 1920s; or prior to that 1907; or the early 1890s and back through history as repeats of the same underlying cause and effect, then they’re unfortunately missing something fundamental. 

We are nowhere the speculative finance peak that would create a Minsky moment. We have nine years to run. If people think things are over the top now, the next decade is going to be a white-knuckle ride…

Nine years left to run?

That’s right. Akhil believes we have nine more years of rising stock, commodity and property prices. Ultimately, we could see the FTSE 100 at 15,000.

Here’s why – and what you need to do about it.


Nick O’Connor
Associate Publisher, Capital & Conflict