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Tuesday, August 25, 2015

Slowing Engines of Growth Examined...or Demographics'R'us

The charts below are of the most populous nations on earth.  These are the top 10 nations + EU, Mexico, and Canada equaling  4.556 Billion.  The ROW (rest of world) represents 2.7 billion.  However, the nations below likely enjoy 80%+ of all global consumption...or in other words, if they have a cold, the rest of the world is very sick with nowhere to ship their exports and no path to middle class Western consumption.

The charts show annual population changes (yoy) or the "flow" of new population and ultimately new consumers.  The columns represent the nations total population change (yoy).  The most important is the blue line representing the working core 15-64yr/old yoy population change.  The <15 in orange and 65+ in grey are also included for reference.

This is a reference post as time and again I'm told engines of growth await in India, Indonesia, Africa, etc. etc.  Peruse the charts below to see the trends for yourself.  The trend of population cores going negative or ceasing to grow has been followed by economic slowdown and massive credit / debt increases.  The pattern is clear for Japan, EU, US, and China...and looks set to continue for Brazil and eventually India, etc.

#1 CHINA = 1.36 billion...declining young and core populations and declining total population starting 2030'ish.  Nearly all population increases from here 'til 2030 are in the 65+ low consumption, fixed to no wage, set.

And below, debt in lieu of a growing core population.  With the credit bubble burst, QE can't be far off in China?
 #2 INDIA = 1.25 and core growth are decelerating with an outright shrinking young population.

 #3 European Union = 510 million...decelerating population growth and declining core and young populations.  See America, China, or Japan to get a sense of EU's debt substituted for population growth.

#4 USA = 321 million...flat'ish total growth but decelerating core population.  All Growth premised on immigration and immigrants higher birth rates once in America.  Of course, this is premised on above trend economic growth (and low skill job creation) to have a need for foreign labor to fill the gaps.  Also assumes continued loose immigration policies.  A lot of "if's" represented by all that future US population growth.

Again, debt substituted for declining core growth.

 #5 Indonesia = 256 m...very similar to India with decelerating total and core growth with outright shrinking young population.

 #6 BRAZIL = 204 m...Significant total and core population deceleration of growth and significant declines in the young population.

  • #7 Pakistan 199m...see India
  • #8 Nigeria 182m...young and growing in all ez data but a +5 million increase approaching China's declining overall growth.
  • #9 Bangladesh 169m...see India
#10 RUSSIA = 142 m...Total and young population trending up while the core is at its peak decline before beginning some recovery.

 #11 = Japan 127 m...Declining total, core, and young population...and even the old population growth is about to decelerate significantly.

And again, credit and debt substituted for a declining core population...but to no avail.  Ever more debt for ever fewer people...that's an interesting concept.
EXTRA CREDIT - America's Neighbors...
MEXICO =121 m...Decelerating total and core population and slightly negative young population.

CANADA = 36 m...see America

Cumulatively with OECD, China, Brazil, and Russia (blue line below) outright declines of the young and core populations are imminent while the ROW population growth continues slowing.  Couple this with declining credit and significant consumption declines are here to stay.

Given the cumulative collapse of high consumer nations young and core population growth and slight slowdown of low consumer nations population gains (below)...the current 10yr period we enter represents about an est. 45% decline in new consumption from the previous 10yr period.  By the time we get to '25-'34 net new est. consumption drops by 90%+ due to significant declines among high consumer populations not adequately offset by low consumer growth.

However, this really underestimates the rate of consumption slowdown due to the lack of population the marginal population growth sparks so much activity.  It requires new infrastructure (highways, water & electricity grid buildups, hospitals) requires new homes and all the stuff to fill them...etc. etc.  Without the high consumer population growth, overall activity tends to fall significantly more than anticipated and the knock on effects to low consumer nations (intent on moving to high consumption via exports to high consumption nations) crashes and burns.

This is a long post to simply say the world is finite and population growth is coming to an end...and economic systems based on perpetual growth of population layered with ever more debt are not coping well with the new normal.

***All population data is from OECD and OECD estimates (btw- I believe the OECD significantly overestimates future population growth as it assumes positive economics that is unlikely to occur driving birth rates.  This above really represents a best case scenario?!?)...


  1. Chris, please allow me to post a general comment here trying to provide a hint to a pending answer: Why Fed is mentioning rate increase during an unfavorable economic environment, no matter what the statwistics say.

    Just finished reading this post It states:

    "In order to keep the dollar up, the basis of US power, the Federal Reserve has promised to raise interest rates, but always in the future. The latest future is next month. The belief that a hike in interest rates is in the cards keeps the US dollar from losing exchange value in relation to other currencies, thus preventing a flight from the dollar that would reduce the Uni-power to Third World status.

    The Federal Reserve can say that the stock market decline indicates that the recovery is in doubt and requires more stimulus. The prospect of more liquidity could drive the stock market back up. As asset bubbles are in the way of the Fed’s policy, a decline in stock prices removes the equity market bubble and enables the Fed to print more money and start the process up again."

  2. Everybody assumes that raising interest rates means no QE. Is that really so? Maybe where the Fed went wrong was going to zero before starting QE.

    1. Hey Grumps - actually, the plan is that QE will continue alongside interest rate hikes. No, seriously. At the minimum, the Fed will continue to repurchase maturing bonds to maintain its $4.5 trillion balance sheet. So, if they can continue repurchasing, there really is no reason they couldn't increase their holdings simultaneously?!?

      In the days before '08, to raise rates, the Fed would pull money from excess reserves and force overnight interbank lending rates higher...but that was in the days when excess reserves held by banks were like $25 a little open market operations by the Fed to remove a couple billion here or there was all it took. Now, banks hold something like $2.5 trillion in excess reserves. So, for the Fed to tighten overnight rates, Fed would need to remove something like $2+ trillion to make any impact. Not gonna happen and Fed has admitted this.

      That's why the "plan*" ( * this has never been done and is totally theoretical) is to increase IOER's so banks are less likely to lend as they can get higher returns parking money at the Fed?!?

      All sounds pretty non-sensical until you remember the Fed works for the banks...well, then it all makes perfect sense to pay banks even more not to lend money while simultaneously increasing interest payments for those who do take loans? There are also all kinds of concerns what happens with money market or other "non-bank" funds that aren't eligible for IOER and what happens in times of high systemic stress...aka, uncharted waters.

  3. In the good old days, the governments borrowed and spent heavily. This government debt aka bonds found its way into boomers pension accounts.

    Now, the boomers are having to slowly liquidate these 'assets' and the central banks are buying them.

    Demographics suggest more of the same. I expect central balance sheets to grow ever more rapidly. At some point the central banks stop doing this. We then enter a major global depression with lots of defaults and deflation. Or the central banks carry on and increase the risk destroying their own currencies. I am simply fascinated.

  4. Demographics won't allow interest rates to recover ever again without major disruption of the money markets -- unless we reform them to operate without money the way we know it, which is a major disruption by itself.

    1. Deteriorating demographics, escalating debt, interest rate derivatives, and any "growth" to be had premised on continued ZIRP. Hard to see how any rate increase is even taken seriously and how the Fed's balance sheet isn't seen as pure monetization to be rolled infinitely. You are right we'll reform, but I'm guessing it won't be at a time or a manner of our choosing.

  5. David - I agree. Looks like we have hopped down the rabbit hole and have entered a scene out of Alice in Wonderland. The central banks have shown their hand to anyone interested. Purchasing bonds, stocks, and anything else is in the cards.

    One thing everyone needs to keep an eye on is IOER and total excess reserves. The capacity to generate a huge increase in the money supply is sitting there. Central banks don't necessarily have to buy as much if they can inflate to allow private individuals/corporations to buy.

    IOER at 3% = $78 Billion in interest to the banks instead of the US Treasury.

    We are going to hear a lot more on IOER moving forward during normalization procedures or during the next downturn. The action will be here becaue Chris has correctly pointed out the conundrum of normalizing the Fed's balance sheet.

    1. On October 3, 2008, Section 128 of the Emergency Economic Stabilization Act of 2008 allowed the Fed to begin paying interest on excess reserve balances ("IOER") as well as required reserves. They began doing so three days later.

      The above quote is from Wikipedia. It is quite clear, to me, that the Fed exists to support the financial interests of its member banks only. Thus, that is what the Fed is designed to do. Regardless of what Janet Yellen believes, the Fed is doing only what it is designed to do. Nonsense about full employment and 2% inflation is simply a useful cover story.

      The Fed protects its member banks at any and all costs.

      It is a big club and you ain't in it. - another quote.

      I hope some of this makes some sense, I have been sampling a glenlivet founders reserve. Basically a cheaper to make version of their 12 year old. It was pleasant enough, I will probably buy more but only when it is on special offer.

      You lot take care and have some fun!

    2. David - it makes sense and then again none of it makes sense...except for the glenlivet. Take care.


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