Wednesday, May 27, 2015

2008 WAS A TREMOR...WHY THE MAIN EVENT IS DEAD AHEAD

The reason WHY the Fed and CB's did what they and did since '08 needs better publicity.  Why they changed from marginal manipulation via interest rates, etc. to outright "being the market" since '08...why the big change???  And once you understand the problem, you understand why the Fed's actions are criminal because they were never going to fix what was broken...this wasn't an emergency or a liquidity issue.


It was a "flow" (not "stock") issue of new consumers that killed an already very flawed economic model.  The annual "flow" of new population growth in the US, EU, Japan, elsewhere generally peaked in the '80's and annual new population growth began ebbing.  By 2008 in the US, the 25-54yr/old annual population change went negative.  The sliding numbers of new consumers had been hidden for years by lower interest rates, more available credit (subprime, etc.), longer duration credit., etc. etc.  But the '08 outright annual decline of the new consumers was too much.


The Fed and CB's had to "suspend the free markets to save the free markets" (but what they really meant was they needed to suspend free markets because what a market would have done is found real pricing between lots of sellers and declining buyers).


Everything now is simply trying to hide the fact we have shrinking consumer bases and will for a decade...and maybe for the rest of our lifetimes.


THE DETAILS -


The annual growth of the 25-54 year old US population segment peaked in 1986 and, with it, the growth rate or "flow" of new potential consumers began declining.  Growth or "flow" in this critical segment entirely ceased in 2008 and has been declining nearly every year since (below).

This was an entirely predictable and foreseeable outcome of demographic trends...why the Fed and Federal Government weren't (and still aren't) preparing for this is stunning.  Clearly, the Fed chiefs and politicians are either unqualified and/or more likely have ulterior motives.


The implications of the declining core and growing older population???  A clean doubling of national debt since the core population growth ceased (below).  The Federal Government and Federal Reserve conspired to create false demand via credit (aka, debt) and rig interest rates to encourage greater indebtedness of both private and public parties.

Looking at the entire 25-64yr/old population, the segments annual population growth peaked in '98 at 2.4 million and has been waning since...under a million every year since '09.  And now the "flow" of blood to the heart of the economy, the 25-64yr/old population, is set to slow to a trickle or even potentially encounter outright declines in the coming decade. 

From '00 til '12, the bulk of the boomers swelled the ranks of the 55-64 year old segment.  The chart below shows the wave of the boomers making their way through the 55-64 population...and the population tide beginning to ebb out of this working segment to the retirement graveyard of the 65+ population. 

Now, boomers are leaving the last productive moments of their working careers, leaving the period of rising incomes and savings (lol), leaving asset rich but cash poor.


They are entering retirement with fixed budgets, generally spending at 3/5's of their previous working lives.  Facing forced liquidation of assets to raise retirement income due to ZIRP and low yields on typical bond portfolios.  They are downsizing (rightsizing) their homes and drawing on social safety nets minus adequate COLA's to keep up with highly inflationary (don't tell the Fed) rents, housing, medicine, insurance, etc. etc..  In short, these are not good "consumers" in the recent American tradition.  They are more akin to subsistence consumers looking for the best deals on adult diapers and medications than frivolous spenders of the recent past.


And what's behind the boomers?  Not only is the 25-54 year old population falling, this segments employment is falling significantly faster.  And full-time jobs across the entire economy are slowing to a trickle (below). 

And the supposed driver of population growth, immigration, is set to disappoint as the driver to attract the primarily low education (high birth rate) immigrants.  Without excess or adequate low skill job creation (lower demand combined with higher productivity, etc.), equals immigration below expectations, and thus no cure-all to native population inadequate replacement rates.  As an aside, all the above data includes all US permanent residents whether in the US legally or illegally.


We have a decade of this demographic rebalancing to go...does the Fed (and advanced economy central banks) have another decade of price rigging and monetizing in them?  Another doubling or tripling of national debt?  And will the populaces accept the perverse side effects of these policies favoring a small minority of asset holders at the expense of the many?  And once the populaces are rebalanced...population growth is unlikely to be an economic driver again in our lifetimes, so how would the debt ever be discharged? 


Perhaps this would be a good time to consider if things like building new housing, far in excess of a flattening population with declining core populations and full-time or jobs creation otherwise makes much sense (below)?  Clearly, the Fed's days of running anything (but their defense fund in their criminal trial) should be over.
All data is via the Fed's FRED page utilizing raw information provided by the OECD and US Bureau of Labor Statistics.

Extra Credit - Just in case talk of echo booms or other false economic saviors comes up...here is the most recent look at the 0-24 year old segment of the population.  With the US replacement rate down to 1.86 (from 2.1 in 2007) according to the National Center for Health Statistics...the youngest segment of our population looks to be entering outright annual decline.