Didn't happen. It didn't happen for the same reason that Prediction 2 didn't happen. Trump's trade war, plus Brexit has hampered the continued growth in world trade, and so of global growth on the back of it. As growth slowed, it gave an excuse for the Federal Reserve, ECB and Bank of England to again relax monetary policy. The Federal Reserve was already under pressure from Trump to reduce official interest rates, and restart QE, because he understands that it causes the stock market to rise, and he has put a lot of his political and personal stock in rising stock markets. In 2018, US stock markets fell 20%, amidst stronger economic growth, confirming the analysis set out in Prediction 6. Already by the end of 2018, Trump's trade war was slowing global trade and growth. It set up the Federal Reserve to end its programme of Quantitative Tightening, whereby it was stopping replacing some of the bonds on its books as they matured. In fact, the Federal Reserves Balance Sheet is now back up to around $4 trillion, which is where it was at its height. The end of QT was followed by the Federal Reserve cutting its official interest rates.
The action of the Federal Reserve was followed by similar action from the ECB, though this has been criticised by some of its Board members. With the strength of economic growth seen in 2018, being reduced, the pressure on firms to invest was similarly reduced. The return of central banks into financial markets, buying up assets and releasing yet more liquidity, meant that financial asset prices rose. That means again that potential money-capital that could have gone into productive investment was diverted into non-productive financial speculation. Property prices did not follow in the same way, indicating the decreased potency of QE in supporting asset prices. In London, property prices have fallen, even in nominal terms. House prices have fallen significantly, but also commercial property prices have fallen hard. That is not just a reflection of a fall in property prices in general, but of the pressure that has been put on retailers. It means that a number of open ended property funds have had to close their books, to prevent speculators getting their money out, because a rash of redemptions meant that the funds could not raise enough cash to meet the redemptions without having a fire sale of the properties on their books.
But, house prices across the country have also fallen, if not in nominal terms, then in real terms, as nominal rises of only about 1% p.a. have fallen behind inflation of around 2%, and wage rises of over 3%. This is in line with the analysis in Prediction 6 that even as a long term fall in asset prices occurs, similar to what happened between 1965-1985, this will be punctuated by periods where brief rallies in those prices, at least in nominal terms, will be seen.
Despite the slowdown in global trade and growth caused by Trump's trade war and Brexit, there was still growth. The US continues to raise employment levels by significant amounts even at this stage of the cycle. The UK and EU has also seen rising employment levels despite sluggish growth, reflecting the low levels of productivity growth typical of this phase of the long wave cycle, which begins to put upward pressure on wages, and capital-values, which begins to squeeze profits, requiring a larger proportion of profit to be invested, i.e. a tie-up of capital, leaving a smaller proportion to pay as dividends/interest and rents. The concomitant rise in the demand for money-capital causes interest rates to rise, which can only be effected via a fall in asset prices.
Some resolution of the trade war between the US and China looks likely in 2020, and stronger Chinese growth is likely to result in greater German exports, and stronger German, and, thereby, EU growth. A partial resolution of Brexit is likely to see greater investment in the EU, some of it redirected from Britain. All developed economies are in dire need of infrastructure spending, and it will become a requirement, in order to compete with other rising industrial economies in Asia and elsewhere. Constraints on labour supplies are also becoming more manifest, and are likely to cause wages to rise at a more rapid pace, again causing demand for wage goods to rise, which will necessitate additional investment.
Completion of the 2008 financial crisis has again been postponed, but it has not been avoided. As soon as stronger global growth resumes, the crash will continue.
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