The four seasons of the Kondratieff cycle

17. May 2024


By Dietmar Peetz, CIO RealUnit Schweiz AG

The structural problems of the global financial system are becoming increasingly obvious. There are many indications that we have reached the “Winter” phase of the Kondratieff cycle. It is therefore imperative to make significant asset allocation adjustments, not only to minimize the negative impact on one’s assets, but also to lay the foundations for the next expansion.  

Nikolai Kondratieff (1892-1938), a Russian economist, became famous around 100 years ago for his research into the strength of the capitalist economic system.

Kondratieff regarded crises in capitalism as essential moments of renewal that challenge the system and offer opportunities for innovation and regeneration. He saw this capacity for self-renewal as a decisive advantage of this system over a planned economy, which has no such built-in mechanisms. These views made him unpopular with the Stalinist leadership of the Soviet Union, and as a result, he was exiled and imprisoned in a labor camp and eventually executed.

His statistical observations showed that capitalist economies go through major economic cycles roughly every 54 years, which he divided into phases, analogous to the four seasons: Expansion (Spring), Peak (Summer), Contraction (Autumn), and Trough (Winter). In his seminal work, “The Long Waves in Economic Life” written in 1926,  he explained how these long waves are driven by technological innovations and socio-economic changes.

He foresaw the end of such a wave would come in the late 1920s –  a prediction that was validated with immaculate precision by the stock market crash of 1929 and the subsequent Great Depression. The next turning point in the cycle came around 50 years later with the economic downturn in the 1970s. This period was characterized by high inflation rates and a currency crisis that severely impacted global economies. The USA was forced to abandon the gold standard. Britain was on the brink of bankruptcy and had to be rescued by a loan from the International Monetary Fund. It was precisely these crises that triggered the necessary reforms within the framework of the neoliberal revolution of the early 1980s that initiated the “Spring” phase of new economic growth.

The “Summer” phase in the Kondratieff cycle was characterized by falling interest rates, a significant expansion of the money supply, and a tremendous increase in debt and financial assets. However, the real economy could not keep pace with this illusory growth. This was because, in order to increase profits and pay interest, important investments were often neglected, weakening the productive basis of economies in the long term.

The “Winter” phase began in 2019-2020, if not earlier. Since then, we have been grappling with an economic landscape supported and powered by newly incurred debt, that was recklessly and enthusiastically piled on top of the preexisting and exponentially growing debt burdens within the system.

However, in contrast to the “Spring” phase of this Kondratieff cycle, when government debt was moderate, all prospects and hopes for further credit-fueled growth are now largely unrealistic. Central banks are backed into a corner. They are faced with an impossible dilemma: they can either raise interest rates further in order to keep inflation low or they can keep them low in order to cope with rising government debt. Both policy directions have serious consequences and carry heavy risks.

Due to their duration, Kondratieff cycles are difficult to recognize in everyday life,  as they span generations. However, in the Autumn or Winter phase, the effects manifest themselves more clearly: at first, they materialize subtly, insidiously, and slowly, but then they suddenly become apparent, all at once. The impact is usually most obvious in the gradual loss of purchasing power of money (measured by the increase in the prices of real assets), as well as the social tensions that stem from inequality and political populism. 

Even more subtle and hard to detect are the so-called hegemonic cycles. These are long periods during which certain nations or state alliances play a dominant role in the world order. The rise and fall of great powers, as demonstrated in these cycles, is a process that spans even more generations and brings about profound changes in the geopolitical landscape. These cycles influence global power dynamics and indirectly shape the conditions under which economic and political decisions are made at the international level. The impact of these hegemonic cycles on daily life is nearly imperceptible, yet their effects are omnipresent in the molding of global politics and the world economy.

After the completion of two Kondratieff cycles, i.e. approximately 110 years, the global economic system reaches a phase during which it is particularly vulnerable to crises. This vulnerability stems from the accumulated debt that has been piling up for too long and from the social disparities that have, by that point, inevitably become irreversible. Such periods often coincide with conflicts and wars, which can serve as catalysts for a realignment of global power structures.

The last transition in the hegemonic cycle began in 1914, when Great Britain, the hegemon at the time, was challenged by the rising might of Germany. This power struggle led to two world wars, which were fought over a period of 30 years and ultimately settled the question of global supremacy. Although Britain officially emerged victorious, it had accumulated so much debt that it was no longer able to defend its position as a dominant military power. As a result, the United States emerged as the new global superpower.

Today, in 2024, 110 years after the last major turning point, we find ourselves once again at a critical tipping point in the global power balance. This time, it is primarily China that is challenging Western dominance. This geopolitical shift could have profound implications for the Western financial system, as a realignment of global power dynamics would put severe pressure on existing economic and political structures.

The ongoing geopolitical tensions and the sanctions against countries such as Russia, Iran and China have led to serious supply issues in the West. The need to procure raw materials from alternative sources at higher prices has exacerbated inflationary pressures and weakened the purchasing power of the affected currencies. At the same time, the switch to electric vehicles and renewable energy projects has led to underinvestment in traditional energy sources, jeopardizing the future availability of these resources.

Also, the weaponization of the US dollar has prompted many countries to look for ways to transition away from the dollar-centric system and to link their currencies more closely to each other. The introduction of a commodity-backed digital central bank currency (CBDC) that is expected by 2025 is heading in precisely this direction. These developments could challenge the supremacy of the US dollar as the world’s reserve currency by 2030, i.e. in the next six years.

The structural problems of the global financial system are becoming increasingly apparent and indicate that we have reached, or will soon reach, the “Winter” phase of the current Kondratieff cycle. It is therefore imperative to make significant asset allocation adjustments, not only to minimize the negative impact on one’s assets, but also to lay the foundations for the next expansion.  

Kondratieff’s insights into the cyclical nature of the economy and the role of progress and innovation pave the way to the development of effective and resilient strategies. These strategies can help mitigate the impact of inevitable downturns and maximize the opportunities for growth in the next “Spring” phase.

This understanding of the long-term consequences of unbridled debt expansion is integral to the development of the RealUnit investment strategy. Our aim is to protect your assets from crises by investing in real assets.

Image source: Lilya –

About the author
Dietmar Peetz RealUnit CIO


Dietmar Peetz

Dietmar Peetz is an expert in asset protection during times of crisis, with over 30 years of practical experience in the financial markets. He has served as Head of Portfolio Management and Research, as well as Senior Portfolio Manager at renowned financial institutions both domestically and internationally. For several years, he successfully managed the largest European commodity fund at Credit Suisse Asset Management. In 2007, he obtained his doctorate on the subject of financial market instability.



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