1 - Core Population Growth Rates and Federal Fund Rates are One and the Same
The chart below highlights the primary driver to US economic growth and likewise the primary driver of the Fed's federal funds rate policy. The chart smooth's the 20-59yr/old core population growth (annual working age core population year over year change in millions) against the smoothed FFR (Federal Funds Rate). They fit nicely...no?!? Simply put, as the core population growth accelerated from 1950 until the early '80's peak; the core needed more of everything driving growth of everything from subdivisions & housing to cars to universities to consumer goods plus all the infrastructure to support it all. Couple that with decades long military build-up and there was serious growth. However, as the chart below shows, core population growth peaked in the early '80's and growth began decelerating. The Fed interest rate cycles turned persistently lower right on cue and rate cuts have followed since to in greater consumption via cheaper debt. The Fed and CB's worldwide chose to synthetically maintain a growth curve that was otherwise unsupportable.
The post world war II population bubble and subsequent bust was the most obvious and publicized economic challenge of our times. And yet, the Fed reacted as if this was a temporary blip rather than the secular reset it is. As if they didn't anticipate the decelerating population growth in the US and nearly worldwide (except Africa)? The Fed's rate cuts coinciding with the peaking core population growth is obvious. So is the Fed's intent (via interest rate cuts) to incent the substitution of private, corporate, and government debt.
But what isn't obvious is how (as the US and world enter a low to potentially zero population growth environment) would rate cuts and the resultant debt bulge to replace the baby bust ever be repaid or serviced? The chart below is annual global population growth (top black line is total annual growth vs. yellow line is under 45 (<45) population growth). The <45 global population growth is further broken down by OECD, BRIICS, and the Rest of the World (RoW).
The chart above shows that all (100%+ net) <45 global population growth is taking place in the poor nations of the world absent income, savings, and/or access to credit...and the poorer developing nations are dependent on the slowing developed nations of the world to provide growing markets and demand so the poor nations may export their way out of poverty. The under 45yr/old populations of the 34 wealthy OECD member nations and likewise the BRIICS (Brazil, Russia, India, Indonesia, China, S. Africa) are outright shrinking every year now and the shrinkage (declining demand) is accelerating.
OK - Back to the Fed...the Fed's plan to substitute lower rates and greater credit against the above secular population changes was short sighted to the point of blindness or outright stupidity?!?
However, according to the BLS the deceleration in US population peaked in '07/'08 (with outright declines) but now the BLS estimates gentle growth going forward...right???
However, as of 2008, the BLS (Bureau of Labor Statistics) had suggested the economic driver of population growth was the US "ace in the hole". The US had this demographic advantage over other nations facing zero growth or outright declines. But a not so funny thing happened following the 2010 Census. In 2012, the BLS acknowledged it was way off in its estimates. In 2014, the BLS went even further in its population downgrades. Population growth among immigrants and offspring of immigrants plus slowing "native" population birthrates were not "temporary" and instead the BLS acknowledged this was a secular change via its massive reductions to population growth estimates.
The '08 to '14 downgrade of population growth among the working core population was also significant though not as dramatic as among the young. The 27% decrease or 11 million fewer working age Americans (11 million fewer tax payers, consumers, etc.) still has massive implications.
The one place the BLS nailed it's forecast...the growth of the 65+yr/old population. The segment short on savings and long on unfunded programs to support their later years. Ouch.
So, the BLS has cut it's population numbers and is likely to continue to do so due to the hard reality of slowing birth rates and immigration. The Federal Reserve's federal funds rate hikes and cuts have been driven by the economic activity of greater and lesser population growth. The estimated population growth from 2016 forward (highlighted in the Chart #1) is likely overly optimistic and the implications to the Fed's (and CB's worldwide) interest rate policy should be obvious. ZIRP and NIRP are simple minded attempts to substitute greater debt for slowing population and resultant slowing economic growth.
3 - What About Immigration & Job Growth?
Given the incredibly strong tie between slowing population growth and slowing economic activity...the current farcical debate to cut off immigration and or repatriate some or all of the estimated 11 million illegal immigrants really matters. What I would give for a real debate of this topic given some simple facts:
- Immigrants are taking a significant portion of net new jobs and are doing so at lower wages than the "native born" population. This is effectively undercutting wages for native born workers whether white, black, Latino, or Asian...and this is depressing low and middle class wage growth and employment.
- Simultaneously, the American story is a story of immigrants...each wave subsequently depressing "native" wage growth but simultaneously increasing overall economic activity. A balancing act that was one step back and two ahead. Immigrants are both workers and consumers of everything and their impact has been the dynamism of America. However, the big change presently is continuing immigration absent net job growth, particularly full time job growth as the chart below highlights. There are a hundred reasons for the slowing job growth but it's likely to get worse and not better.
As the chart below shows (using the Fed's interest cycles), the continuing population growth is not being matched with full time job growth and worse off...ongoing declines in manufacturing employment.
The chart below highlights the federal funds cycles and the declining full time jobs growth despite rate cuts and the resultant ramping debt growth. Somehow, this doesn't look like a "mission accomplished" moment and perhaps even outright failure?
4 - What is the Fed's Role & Who Runs US Economic Policy?
The chart below juxtaposes the absence in the net full time jobs growth over the past 8 years with the near doubling in the Russell 3000 (representing 98% of all investable US equities) seemingly driven by a quadrupling of the Fed's balance sheet (driving among other things corporate borrowing used in corporate buybacks, dividends, and corporate officer payouts)? It seems the Fed has determined to utilize trickle down policies pushing the wealth effect and growth of a small minorities wages. What wage growth there is among the top 20% but more truly among the top 3 to 5%. Unfortunately, the Fed isn't up for re-election or available for oversight now or, well, ever. The Fed is simply effectively beyond reproach...our founding fathers greatest fears realized!
Perhaps now would be a great time for the Donald and Hillary to discuss the realities the next president will encounter...but this is simply not going to happen. Immigration policy, the Fed's proposed rate hikes (plus potential balance sheet drawdown...lol), the Fed's trickle down economics, and the role of the Fed in their potential Presidency's (who will serve who?). Roundly, a discussion of the potential impact of these topics on the US economy, wages, and jobs is off limits?!? Prepare accordingly when truth is off limits and the likely winner is the candidate willing to tell the lies the electorate most want to hear.