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Thursday, May 21, 2015

Reality Check - What Happens when a Ponzi Runs Out of New "Investors"

When you have demographics against you, interest rates at zero, record debt to GDP, and you are likely beginning a recession while in the midst of the greatest asset bubble of all time...some things to consider while Wall St. and the Fed tell you all is well!?!

Below, average annual population growth (red) vs. full time jobs growth.  Rarely has a year come since 1980 when adequate jobs were created to keep up with the growth in population.  Since 2007, the trend has gotten particularly rough.  And this is likely the top of the cycle...
Demographic trends are horrible.  The 25-54yr/old population has peaked and is in contraction since '07 while the 65+ segment is surging.

A look at the 25-64 yr/old annual change in employees vs. the annual change in the 65+ population.  65+ population growth will continue its surge for another decade while 25-64 employment is likely peaking...particularly if we are entering a new recession.

Chart below highlights the change over periods in 25/64 yr/old employees vs. the 65+ population.  Clearly, the most recent period is like nothing we have seen.
Full-time job growth has been slowing for decades while rates cuts and debt accumulation have been substituted in lieu of growth.

There is no joy in showing these data sets but the data is what it if we stop pretending all's well.


  1. Excellent summary, brilliantly presented.

    With twelve followers / disciples / regular readers then the human race clearly hasn't reached a fork in the road yet. Momentum carries us forward. Now, twelve thousand readers would indicate that the fork is in sight.

    One path leads to more regulation and less common sense. More powerful global government, banks and multinational corporations. Weaker national governments and people treated like commodities.

    The other path, the opposite. More power to individuals and local decision making.

    In engineering terms, dcs and scada or one super computer / master and seven billion dumb terminals / slaves.

    Put simply, do you choose to be a slave, conform to all conventions and deny all responsibility for your circumstances. The ultimate passive victim.

    Or do you simply take back all your power and accept the consequences of your actions and inactions.

    I have recently, temporarily, given some of my power to a doctor and a surgeon. They have my consent to make important decisions regarding my health. So far, they have disappointed me. They were uncomfortable when I pointed out my dismay, I was within my comfort zone.

    The powerfull and elite few, are not powerful or elite. They are few.

    The disorganised masses are powerfull, very powerfull. They are many.

    Perhaps many of us struggle to make sense of government and finance. That is likely due to the fact that they do not make sense. As the above charts clearly show.

    1. Hey David,

      sorry to hear you are dealing with health issues and sending good thoughts your way. As always, thanks for sharing your thoughts. 2015 seems the timing for some type of schism and even a small minority of folks with some insight into the drivers of our issues could be influential in driving an honest discussion and potential new dawn resolutions rather than more lies taking us deeper into the abyss.


    2. My very best thoughts and prayers, too.

      Going through tough times together builds character and cooperation. Happened during the depression, and I pray it will happen now. But it might take a plan just to survive long enough to get to those hard times.

      I too, believe in preparing while we can! Here’s my idea to keep it simple.

      Anybody want to go in with me to lease/purchase a hidden and secure piece of RE in Orange County, CA and put 50 – 100 RV pads on it?

      It would be a wonderful place to spend a weekend; An instant bug out destination that’s close by; An instant community of normal but concerned families; Instant safety in numbers; Pre-stocked and ready if ever needed; with a comfortable residence (your own RV) for as long as necessary. No eating bugs for practice. No para-military or survival training. - But, members within the community that can teach us whatever we need to know, if and when we need it.

      I’d put up some seed money if 5-6 more would do the same. Wells are in place with heavy gate, shop, and some buildings, but needs solar, etc. Good idea or dumb idea? I’d like your thoughts: HUMANS-ONLY-SEND-TO-skookumjim00ATgmailDOTcom-THATS-ZERO-ZERO-AFTER-JIM.


    3. Hey Jim,

      thanks for reading...and it's a dumb idea unless its needed and then it might be a really good idea...kind of like a life insurance policy.

      Still, I'm more in the camp that believes we're more likely to see greater statism and greater control to "maintain law and order" than some sort of chaotic outcome. But everything may have it's time and in that moment or period, something that seemed a bit "out there" at the time may no longer seem so.

      The Y2K group are still liking their wounds...may prepers be so lucky!

  2. Chris,
    All joking aside, I hope you have more than 12 followers. I am sure the demographics of Japan are considerably worse. They are the first bug to hit the windshield. I do think that China will be the match that lights the dynamite.

    On a topic not related to the post, I am in the process of reading a book by Phillip Haslam, "When Money Destroys Nations". Excellent book about Hyperinflation in Zimbabwe and the long time lag between policy actions and the bad economic side effects. It is a disturbing book in that it really knocks a society down to poverty levels that are unimaginable. The one thing it said that is encouraging is the barter and cooperation between local networks of people and the spiritual experience that people went thru was unlike anything they ever went experince that they still miss I guess it is similar to the deep relationship formed between military comrades and how they try to keep their friends alive. This spiritual rebirth will be what will ultimately change our society and allow us rebuild from the bottom up. I hope we will see less government and more of a libertarian governance.

    As the commenter discusses above,don't be a victim and start preparing before it is too late.

    1. Hey Anon,

      Japan is decidedly worse as they began the fall of their 25-54 yr/old population in 2001 and this segment has fallen about 10% since. Many EU nations began falling shortly thereafter and the worst among them in declining 25-54 yr/old populations is Germany falling in excess of 8%. How the population bust isn't front page news is amazing. The idea that immigrants were going to fill the void fell apart once the low skill job engines fell apart coupled with language, cultural, religious issues particularly in EU not allowing assimilation.

      Hyperinflation and then a depression seem the likely outcomes but who knows. But the sky will still be blue, family and friends still most important, and the sun will still rise...we've a knack for adjusting.

      And just kidding on the blogs's actually up to 14 now. The ad revenue is almost enough for a happy meal a day!

    2. How does a person like myself who really knows nothing about the numbers of hyper inflation, prepare for what is coming? I have a feeling something is up but don't know the specifics.

    3. Answered a similar question on another article reposting my response...

      Thanks for reading but unfortunately, my answer is gonna suck (just setting expectations). There is no silver bullet or magic wand. I think what's coming is more akin to an ice age than a storm. The models we've grown to know are culminating and the new system or model is simply unknown (at least to me).

      So, best I can offer is plan for the worst and hope for the best. Folks like Chris Martenson of Peak Prosperity make good sense in their approach. Do your best to build your resilience and the like. Do the things that always made sense...have friends and be a good friend, minimal debt, have a big pantry, buy some amount of precious metals (pick a % of assets), have a small armory, and enjoy them but hope you never need any of them. Sorry if I have nothing to tell you don't already know.

      I should add that you if you are fortunate enough to have the basics above almost have to buy some amount of RE, stocks, bonds (leverage levels is based on how you want to sleep), and hold some amount of cash...regardless if you believe in them or not or if the fundamentals make any sense. They are almost surely politically appointed valuations...and the system is so compromised that maintaining false valuations are almost surely considered of national security.

      It's just the allocation that is up to you...but what I have found is that peoples belief systems tend to match their gold bugs generally want nothing but collapse as only that outcome suits them...stock holders want to hear nothing but bullish holders, RE holders, etc., etc. So think of the outcome you want, the outcome you believe in, and the outcome you find hard to believe. Invest some towards all and you'll hopefully have a return and hopefully remain positive but guarded (as best you can) to all outcomes.

      Ultimately, we are all part of a Ponzi and valuations are as phony as Madoff's clients statements. How and when the reset takes place is simply one of life's mysteries.

  3. Being somewhat color blind the charts were not good for me. However, I have been aware of the info for some time. Let's blame the Greatest generation, not the boomers. My Mom paid a pittance into SS and withdrew several 100K in benefits. My Dad died shortly after retiring and still got back every cent of his SS "contributions", discounting the interest lost. My inlaws are quite wealthy and have been sucking on the nipple of subsidised prescriptions and SS "benefits" for decades. If my MIL goes into a nursing home we will all pay the inflated bill. The youngsters I work with know there will be nothing left for them.
    OBTW, my 2 cents to Jim, get out of So. Cal.!!! If you are looking for a safer BOL nowhere in Orange County is nearly far out enough. You can't stock enough 5.56 to hunker down that close to that huge population.
    I am old enough to remember Hambone. A fond memory.
    -Tinfoil hat Davy

  4. (to the 12 of you who read this

    You now have 13. :)

    Come September October, there will be the beginning of the downturn in the Washington debt bubble, watch pensions go south along with one municipality after the other. Public debt won't be able to be serviced, you will then have gnashing of teeth while the public sector marches to Washington with torches and pitchforks demanding a taxpayer bailout.

    1. Hey Anon,

      what do you anticipate to be a trigger for the downturn in the debt bubble? Why Fall? Just curious.


    2. Right now what we have low level interest rates which are doing nothing to stimulate demand, their killing retirees who depend on their savings reducing spending and they're taking jobs deepening the unemployment problems for our youth, also foreigners are being recruited creating more problems .

      Public Pensioners are living longer together with next to nothing interest to sustain them. Governments cannot meet their tax obligations as revenues decline due to a slow crawl in economic activity. Taxes, Fees and regulatory requirements are the driving force to sustain the massive national debt which is mostly interest and trillions in unfunded liabilities, as gov't continues to build allowing them to get more creative in their hunt for revenue worldwide.

      Now Europe is pitching negative interest rates and digital currency which will enable them (in their delusional minds) to have complete monetary control while filling their coffers with what are now undisclosed transactions that are made in cash. If they are successful in Europe with complete faux control capital will move off the continent triggering the collapse in the Euro and the EU will go down for the count. Once Europe goes, then Japan then US.

      So you ask, what will be the triggering down turn in massive Gov't debt, one word, CONFIDENCE!

    3. There is always war...unfortunately. Im betting a global 'reset' following a short but brutal WW3. Not apocalypse or anything, but enough to reduce some surplus population and a nice new digital currency for the world to use(which i have found a few upsides to charitable giving for instance)
      I assume taxes will be auto deducted from each and every transaction.
      Drones will replace much of the hard labor force and there are only so many server/barista jobs.
      Negative interest rates will likely be the first step in a entropy based digital currency that loses value over time. Once it reaches half life, investors will play commodity games like hot-potato with it. Algos to predict when the music stops will be the new hedge fund managers.
      Optimistic about some space travel after the WW3 dust settles, new mutterings about stopping the aging process.

      2015 might be the Chinese curse-manner. We have Jade Helm all over the Southwest and a new ISIS bad guy claiming to attack the US...perhaps in the Southwest??? Coincidence attacking a drill, nah, never happen.
      Prep but realize there is a natural cycle to these things and they will get better after the proverbial storm.

  5. there will be no hyperinflation!

  6. Guess I'm disciple 12 lucky me! Keep stackin' FOOD that is. Oh and booze too. Can't be in misery w/o liquor. What fun would that be.

    1. Hey Anon,

      I may have lost one or two of the your moving up the list! And I'm all for a nice adult beverage while taking in some of this information...otherwise blood pressure can get a little elevated.
      Cheers, Chris

  7. Interesting stuff. I've been trying to figure out what to do with the money in my 401k, already lost in once, hate to lose it again...

    1. Hi there anonymous. Using the word 'money' is hazardous to your wealth. In your 401k you have other people's debt. Do yourself a favour, never use the word money again. I have paper currency, electronic currency and some gold. My currency is denominated in pounds sterling as I live in the UK. My gold is denominated in ounces. You must use the terms correctly otherwise you risk misunderstandings. Best of luck retaining or even growing your wealth. Having a good think is an excellent first step, well done. :-)

  8. This is why the stages of collapse should be expected to occur roughly in this order : financial collapse, then commercial collapse, then political collapse. Once these first three stages have run their course, everyone’s energies should be redirected toward preserving as much of society and culture as they can by rebooting into an entirely new mode: clandestine financial arrangements and transactions within exclusive circles of trust, informal face-to-face commerce largely based on tribute, barter and gift, and spontaneous self-governance at the local level. Dmitry Orlov The five stages of collapse. Great book, reading for the second time. Russia went through this process when communism collapsed.

  9. I don't disagree with your broader point at all. However, it appears that your first chart assumes that 100% of the population growth will eventually end up in the labor force, yet we know that labor force participation rates are never 100%, and in the USA prior to the recession of 08/09, it ran about 66%, while now it's about 63%. You would do well to take that into account as otherwise you are overstating your case, which undercuts its credibility. (Not something that I'm personally questioning, but worth noting.)

    1. Gringo - you are right and I only put the population growth up there to give some scale and make the point that jobs growth (full time jobs growth in this case) isn't adequate to keep up with population growth and is getting progressively worse.


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