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Thursday, February 4, 2016

The Relationship of Slowing Population Growth, Rising Debt Creation, & The Federal Reserve's Role

The Federal Reserve and central banks have purported they can perpetually create greater and cheaper debt to maintain accelerating consumption and infinite growth despite decelerating population and wage growth.  The breakdown of population growth and a review of its changing components is all you really need to see in order to understand how wrong the Fed is.  Consider...


The US
The 65+yr/old US population growth (per period) has ramped about 600% since the turn of the century...and is estimated to continue growing through the next decade...adding over 18 million new 65+yr/olds over the coming decade.  No shock the baby boom is getting old and old are credit averse, on or moving to fixed incomes, and generally consuming at levels far below their younger days.

However, what is less well understood is the 0-64yr/old US population growth has decelerated by about 66% since the turn of the century...and is estimated by the Census to further decelerate to less than 8 million over the coming decade.

And of course, the total US debt accumulation (shown below annually vs. Federal Funds Rates) has been rapidly rising thanks to the rapidly declining interest servicing costs.  The peaking Federal Funds Rate alongside slowing population growth was not a coincidence and rates were dropped to incent consumption (and growth) rates beyond what would otherwise be achievable. 

The below chart highlights the year over year growth in the 15-64yr/old US population.  The Federal Reserves interest rate policy and the US annual budget deficits seem to be primarily driven by the rising and falling demand and consumption of this changing population.

And now, US core population (15-64yr/olds) growth has slowed from peak growth by 70%  and by 2025 will be down nearly 100% or potentially turn outright negative.
The Fed has simply been reacting to accelerating and decelerating population growth (and the demand represented there-in) via turning the knob that is the Federal Funds Rate up...and mostly down.  But why the Fed would be insinuating rate hikes are imminent in the face of little to no upcoming core population growth is truly a mystery?  Is it possible the Fed doesn't even know why they have been raising and lowering rates all this time???


Below, the US federal government debt accumulation (per 5 year period) surging.

So, the below chart puts it all together with the near collapse in the growth of young, the surge in old, accompanied by ramping federal debt (thanks to the Fed's collapsing of interest rates and the cost of servicing debt).

THE WORLD


For a wider view, below are the 34 OECD nations representing the worlds wealthiest nations, plus China, Russia, and Brazil...or a combined 42% of the worlds population (in excess of 3 billion) and likely closer to 80% of oil consumption, global wealth, and general income.


The first chart is the annual growth of younger (0-64yr/olds) vs. old (65+).  The deceleration of younger population growth (soon to be outright annual declines) vs. surging older populations couldn't be clearer.

Below, the decline of population growth among the combined adult populations (15-64yr/olds) of all OECD members + China, Brazil, and Russia juxtaposed by surging global debt (driven by interest rate cuts) to maintain unnaturally high levels of consumption.

Finally, the global 0-64yr/old annual population growth broken into two buckets...1) OECD, plus China, Brazil, & Russia vs. 2) the RoW (rest of the world).  All the data and estimations are created by OECD and among the more reliable sources of economic demand.  The trajectory of both rich and poor population growth estimations is down but the lose of growth among the rich nations now will not be adequately offset by decelerating growth among the poor nations.

Conclusion:
The Federal Reserve and central banks have an erroneous notion they can perpetually create greater and cheaper debt to maintain accelerating consumption despite decelerating population and wage growth.  These simple charts should make it abundantly clear the leadership of the Fed and federal government(s) are at best academic clowns and at worst criminally complicit of driving the world into potential chaos.  A severe course change is imminent.

3 comments:

  1. Love your work. Could you create a post that focuses on the housing market and the impact of demographics? Harry Dent Jr. as you probably well know is a fan of demographics too and states the housing market will never be the same because there won't be enough population to buy the boomers homes. Can you put it all together for us? Thanks

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  2. https://research.stlouisfed.org/fred2/series/DDDI06JPA156NWDB for BOJ assets/gdp ratio

    https://research.stlouisfed.org/fred2/series/DDDI06USA156NWDB for Fed assets/gdp ratio

    Note...Japan has hit the fence and has implemented NIRP because total outstanding bond liquidity is drying up due to BOJ balance sheet expansion during QE.

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    Replies
    1. thanks anon - I threw these into my last post. What happens once .gov's and corporations have used free money to buy up all assets??? Prices to the moon and worth / economies in the gutter.
      Cheers, Chris

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