Monday, February 22, 2016

Population Growth and Consumption Growth...2 Sides of the Same Warped Coin

What economists and "wealth advisors" will tell you...the world is growing like it always has...see below.  "Nothing new under the sun and no reason we can't grow our way out of our troubles."

But few financial planners or "analysts" even bother to point out the slowing global annual population growth (below).  Annual growth peaked in 1988 at 93 million a year and population growth has been slowly receding, now growing at 80 million a year.

However, this is where the normalcy bias ends.  What I'll try to make clear is that the quantity and quality of the make-up of that population growth has been deteriorating for decades...and like an engine losing compression, the global economy simply couldn't organically grow at a rate deemed adequate by central planners.  Thus, interest rate cuts were implemented inversely to slowing population growth to induce credit creation.  This maintained synthetic levels of credit fueled "growth" and consumption in-line with central planners expectations.  However, credit is no longer capable of making up for the minimal, flat, (and where it matters most) declining population growth coupled with rapidly flattening wage growth.  Central bank and federal government programs are no longer capable of sustaining previous levels of consumption growth and this is visible across the commodity, corporate cap-ex, and consumer spectrums.  Massive overcapacities worldwide have resulted.   Unfortunately, rather than acknowledging the simple reality we face and embarking on a great restructuring...expect far more synthetic substitutes of QE, NIRP, and monetization as these are the only means to delay (not avoid) the necessary (although terribly painful) free-market re-pricing of assets plus rebalancing of supply & demand curves nationally and worldwide.  The sharpest "crack-up" boom or global "bull market" is likely dead ahead for financial markets while global economies breakdown accelerates.  This last stage of the grand folly will astound the "analysts" with its rapid and immense divergences before the rickety structure of the "growth" falls victim to gravity.

We're going to review population growth sources from two separate age (growing young populations vs. old living far longer than preceding generations) and by nation types (rich, middle, and poor).  From these two sources, it should be clear why our present economic path is faulty and a "course correction" is necessary and likely imminent.  All population data is from the OECD.stat and the US Census.
By Age Type:
The chart below details where the growth is taking place...what should be obvious is that the wave of post WWII growth and slowing growth since was not a US phenomenon but a very global occurrence.
  • Total population growth peaked in 1988 @ +93m/ +80m/yr, down 14% from peak
  • 0-24yr/old growth peaked in 1968 @ +47m/ +8.6m/yr, down 82% from peak
  • 25-44yr/old growth peaked in 1989 @ +40m/ +22.5m/yr, down 44% from peak
  • 45-54yr/old growth peaked in 1999 @ +23m/ +14m/yr, down 36% from peak
  • 55-74yrs/old growth will peak in 2020 @ +35m/ +28m/yr
  • 75+yrs/old growth will peak in 2041 @ +18m/ +6m/yr 

What should be really clear is population growth isn't really's population longevity.
The next chart shows what the growth looks like as a percentage of the growing total population.  Growth only continues decelerating but the bulk is among the 45+yr/olds.

Population Growth by Nation Type:
  • OECD (Organization for Economic Co-operation and Development) represents the 34 most developed, wealthy nations
  • BRIICS 6 Developing nations
    • 3.4 billion (45%) @ present
    • Brazil, Russia, India, Indonesia, China, S. Africa
  • RoW (rest of world)...all remaining nations
    • 2.8 billion (37%) @ present
The chart below shows all annual global population growth among these three different sources.  Growth is moving from the wealthy nations to the progressively poorer.

If adjusted for relative incomes multiplied by population growth, the chart below represents the importance of the OECD and BRIICS vs. the relative weakness of the RoW.  The chart holds incomes constant for OECD @ $40k/yr average, BRIICS @ $15k/yr, and the RoW @ $8k/yr.
Only 38% of global growth is now among those under 45yr/olds...and 100% of that under 45 population growth is among the poorer RoW (primarily if not net entirely in Africa).  Population growth is among those with modest incomes, little savings, and little access to credit.  These are not folks who add much to global demand or global consumption.  However, significant declines among the BRIICS under 45yr/old population will bring <45 population growth to a near standstill indefinitely.
The chart below shows the importance (from an economic consumption standpoint) that the population growth among the OECD and subsequently of the BRIICS played in growing global consumption.  The chart also highlights the general inability of the RoW to make-up for the decelerating population growth among the wealthier nations.  The chart again holds incomes constant for OECD @ $40k/yr average, BRIICS @ $15k/yr, and the RoW @ $8k/yr.

Some select nations that may be of interest...

US of A total annual population growth by age segment (below).
  • Total population growth peaked in 1992 @ +3.5m/yr...perpetual optimists at the Census estimate the growth will "hockey stick" to +3m/yr in 2016 (from +2m as recently as 2014)
  • 0-24yr/old growth peaked in 1961 @ +2.1m/ zero, down 100% from peak
  • 25-44yr/old growth peaked in 1982 @ +2.2m/ 1m/yr, down 55% from peak
  • 45-54yr/old growth peaked in 1987 @ +1.6m/ -45k/yr, down 105% from peak
  • 55-74yrs/old growth will peak in 2012 @ +2m/ +1.5m/yr, down 33% from peak
  • 75+yrs/old growth will peak in 2030 @ +1.2m/ +600k/yr

US annual population growth by % (below).
Of particular interest for the US (and generally all nations) is the Household Income by Age Bracket.  The 35-54yr/old segments being the portion with the highest (although declining) earnings.  The current declines in population among these segments dovetailing with the onset of the '08 GFC should not a surprise.

Japan total annual population growth & breakdown by age segment.
  • Total population growth peaked in 1972 @ +2.8m/ -400k/yr in 2016, down 115% from peak

China annual total population change and breakdown by age segment.
  • Total population growth peaked in 1969 @ +22m/ +7m/yr in 2016, down 68% from peak
  • 0-24yr/old growth peaked in 1969 @ +14m/ -8m/yr, down 157% from peak
  • 25-44yr/old growth peaked in 1993 @ +13m/ -600k/yr, down 105% from peak
  • 45-54yr/old growth peaked in 2013 @ +8.4m/ +5.6m/yr, down 33% from peak
  • 55-74yrs/old growth will peak in 2020 @ +11m/ +8m/yr
  • 75+yrs/old growth will peak in 2041 @ +5.8m/ +1.2m/yr
China annual population growth by %...

And what do nations do as economic activity from decelerating or declining populations occur???  The chart below repeated in developed nations world over...crank up credit (via low interest rates in advanced banking decree in China).

To recap, as population growth slowed and moved from rich to poor, from young to old (living longer)...central bankers made a monumentally stupid decision.  Central bankers followed Keynes advice from a different time and reality...CB'ers lowered interest rates to incent greater use of credit to maintain unnaturally high levels of demand and consumption.  Of course, if you look at the charts above, you would have always known more debt to be serviced by little to no growth was a fools errand.

Finally, the chart below highlights the Federal Reserves interest rate cuts since 1981, coinciding with the slowing of the 25-54yr/old growth of the US population.  The chart highlights the rate cuts, the soaring debt incurred vs. the declining full time job creation during each cycle.  If this chart is correct, NIRP will not create jobs but will certainly support massive new debt creation...