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Friday, June 19, 2015

0ne Simple Chart Explains the Great Financial Crisis and Why a Far Greater Crisis is Inevitable

The below chart has four variables...
1- Annual US population growth of the 0-54 year old segment.  This is the portion working and raising families, buying homes, building nest eggs...the 45-55yr/old segment is the peak earning and spending segment.
2- Annual US population growth of 55+ year old segment.  This is the segment nearing or in retirement.  They generally are moving to fixed incomes and social safety net programs.  They are asset heavy and cash light...and need buyers for all their assets they are mandated to liquidate in their old age.
3- Total Federal Debt
4- Federal Funds interest rate upon which all interest rates are derived

The chart uses a 3yr moving average on the population change due to occasional large variances in census years. 
The 0-54 peak yr/old segment growth peaked in the early 90's at almost 3 million and has steadily declined since...now down to 300 thousand.  This is a 90% drop from the '90's growth rate in new population...a 90% drop in new consumers, 90% drop in new homebuyers, etc. etc.   


Simultaneously, the 55+ year old annual population change has increased from the early '90's rate of 300k to the present rate in excess of 2 million. 


Simply put, the young are workers, consumers, savers...the 55+ are the liquidators of their assets and takers of social safety programs.  A federal leadership focused on artificially raising asset prices for banks and an outsized retiring population (via un-repayable debt...and unserviceable debt absent interest rate suppression) is essentially destroying the younger and future generations economic viability...so the old can have one more day in the sun.


The same phenomenon happened similarly across all advanced nations.  The chart shows why the Fed and central banks and politicians colluded to maintain a fundamentally flawed system...but everything they have done has only exacerbated the demographic challenges we faced in '08.  And these negative demographics will worsen over the next decade until the "pig through the python" finally exits...ultimately to be replaced by some sort of new very slow or no growth or even negative population "growth" reality.  Please note all these numbers are inclusive of all permanent residents in the US, regardless legal  or otherwise.


So look at the chart again and study it...I think it explains what happened when our system (premised on perpetual growth) no longer had key population segments growing.  And maintaining this flawed and broken system is simply destroying the present and future for the vast majority to the benefit of a shrinking minority.

8 comments:

  1. Surprised that you didn't point out that Japan is in a much more advanced demographic financial collapse than is the U.S., and then discuss Japan's 10 year prospects and problems, and relate that to financial expectations for the U.S.

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    1. Hey Anon,

      right you are US is not alone but I've written on this topic so often it's a bit of a dead horse...check the link for more detail.

      http://econimica.blogspot.com/2015/02/fundamentally-flawed-chapter-1-advanced.html

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    2. I believe this is the primary reason why corporations are demanding relaxed immigration policies, and since they own both major political parties, they expect to get their way.

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    3. You are so right.

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  2. Your site is some of the best info on the internet. Big things very simply presented. Thank you.

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  3. Interesting to put it this way. Actually this should give us hope, since perpetual growth is no viable option on this planet anyway. We need a lot of shrinking of the economy in years to come...sorry for those on fixed income, might get tough!

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  4. Low interest rates don't help the retired. What are you smoking? I get tired of people who try to divide the old from the young when the Fed is doing this to both. The young could get a low interest loan, so it works against the old there. But of course, the millennials don't trust bankers and that is a good thing, really.

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  5. Low interest rates don't help the young either. Low interest rates support high asset prices. Low interest rates make saving up a deposit or retirement nest egg harder.

    Therefore, if interest rates rise the value of assets falls. This would effect the young and old differently. The boomers bought at high interest rates and low asset prices. The ensuing wage inflation and decreasing interest rates was a massive financial gift at those who followed expense.

    I am just saying that the boomers had opportunities that no longer exist. No blame is being distributed. Our fiat currency system is artificial and appears to have been managed to the benefit of the boomers, a very vocal group.

    Let us test your financial literacy. Could all banks lend at 6% against good collateral / business ideas and provide 6% on savings too?

    Those who ask how would the banks would make a profit are financially illiterate. Which sounds harsh but most people are. Otherwise Jamie Dimon would not be a billionaire.

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