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Wednesday, February 10, 2016

Why the Financial and Economic Systems are Coming Unglued

I can show why our financial system is collapsing...and I'll use OECD and Census data to do so.  This is really that simple...a faulty system premised on infinite growth which ran into finite limits in the most surprising place of all...too little population growth.  And as population growth slowed coupled with flat wages, central banks substituted lower interest rates to incent higher demand via greater credit.  This "worked" until ZIRP but since then...central banks have taken over as buyer of first, middle, and last resort.  Here's why there's far more of that is on the way.

Okay - enough pleasant chit chat...
US Population Growth
First, take a look below at the annual US population growth as a % against the growing total population.

US population growth (as a %) peaked at 1.8% annual increase...in 1957
  • 1.5% of that growth was due to rising #'s of young and incoming immigrants
  • 0.3% were 65+ year olds living longer than their predecessors
As of 2016, US annual population growth has slowed to 0.8%

  • Only 0.3% is due to births and immigration among 0-64yr/olds
  • 0.5% is due to 65+yr/olds living longer.





US total population growth peaked in 1992 @ +3.5m/yr
  • 3 million were 0-64yr/olds
  • 500k were 65+ living longer
2016 US total population growth is +2.5m/yr
  • 1.5m are 65+yr/olds...and rises as high as +1.9m/yr growth over the next 15yrs.
  • 1m are 0-64yr/old young and immigrants...and the next 15yrs sees growth as low as +600k/yr (an 80% decline in annual growth from peak)


Below, a focus on 15-64yr/old annual growth...and the slowest growth among this critical segment continues through 2030.  Things only get slower from here until an est. zero growth by 2025.

For those curious about the rest of the world, a few charts to show we are all in this together.  The chart below is 0-64yr/old population growth % of all OECD nations, China, Brazil, and Russia amounting for over 3 billion persons and about 80% of the worlds wealth.  If these nations don't grow...the rest of the world has nowhere to export or means to grow themselves.

0-64yr/old annual combined population growth for OECD, China, Brazil, Russia vs. 65+ population growth.

And below, 0-64yr/old OECD+CBR vs. 0-64yr/old population growth for the rest of the world.


US Full Time Jobs vs. Population Growth


I see the below chart a lot depicting the US full time jobs market.  Lower left to upper right...all good?!?

However, if we break it down by 16-54yr/olds w/ full time jobs vs. 55+yr/olds since 2000 (chart below)...it's a whole lot more indicative.  As far back as '00, the big group of 16-54yr/olds with full time jobs is shrinking (losses spread evenly among 16-24 and 25-54yr/olds segments) while the small group of 55+ with full time jobs is nearly surging by 50%.

Of course, this is problematic as it means the younger segment isn't building career skills, isn't building savings, and ultimately isn't creating net demand or capability to buy the older segments homes, stocks, bonds, and assets the old are hoping to help fund themselves in retirement.


Below, an annualized look at 16-54yr/olds vs. 55+ with full time jobs.  No recession or slowdown for the elderly.



And just so were fair, a look at the population growth among each age segment vs. full time job growth.  All net job losses among the 15-54yr/olds and all job gains among elderly is not a "normal" distribution.



Seems the elderlies gains are the younger generations losses.


And below, some perspective on the changes in the adult vs. elderly population gains, by period, since 1970...and what the next 5yrs looks like in comparison.  That big red arrow highlighting the dearth of growth in adults vs. the surging elderly shouldn't be a surprise.



But I had to double and triple check the next chart (below) as I was a bit surprised...the growth in dependent elderly vs. growth in adults over next 5 years is unprecedented.  20 net new 55+ elderly for every net new 15-54yr/old adult!?!

The chart below again highlights the growth of elderly populations, growth in debt, simultaneous with decelerating adult populations.

So, population growth is decelerating and interest rates and debt are the substitute?  Prove it???...ok, chart below.  Based on the below, the Fed's ruse of a rate hike cycle was never in play while population growth of the core will fall to the lowest in a century.

And the below relationship only set to become far more "inverser".

But debt isn't growing fast enough since ZIRP has been implemented...below.

And only the government is incented (to create more debt) by ZIRP.

So, expect to see lots more of central banks buying assets with non-existent money to reduce the outstanding stock while simultaneously pushing up the price of existing assets.  More ZIRP and NIRP to pay institutions to take loans with which to buyback their own shares and buy up Treasury debt.  Banks penalizing savers for their "hoarding" and unwillingness to "risk it all". 

And since the US (and world in general) seem to be following Japan's lead, a quick check of Japan's central bank, the Bank of Japan, assets to GDP should be instructive of what comes next for the Fed...chart below.  A Ponzi fails when it hasn't adequate new investors...your guess is as good as mine when this Ponzi will officially fail but its collapse as of '08 is readily visible.  Investors should know their only hope is more and greater central bank intervention...for if markets were left to find honest bids between willing seller and buyer, the result would be cathartic.

5 comments:

  1. Thanks, Hambone, interesting stuff.

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  2. This is all very well, but population growth can not grow for ever. Once upon a time America was a massive swathe of emptiness. This was never going to end happily.

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  3. Excellent summary, thanks, great work. It all fits together nicely. The hard question to answer is how do we get out before the doomsday economic reset!

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  4. The problem is the relationship of debt to declining population. There arent enough people to allow the debt to be easily managed. The debt should never have been allowed to get so big. Only solution now is a combination of defaults and monetary inflation/devaluation.

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  5. @A Jones - Bingo. This, rightly or wrongly, is why I long ago concluded that we have "No Way Out!" of this debt debacle except for inflation. BTW, as usual, great piece from Hambone!

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