Sunday, April 24, 2016

Simultaneous Elderly Overpopulation, Youth Depopulation & The Impact on Economic Growth

Strangely, the world is suffering from two seemingly opposite trends...overpopulation and depopulation in concert.  The overpopulation is due to the increased longevity of elderly lifespans vs. depopulation of young populations due to collapsing birthrates.  The depopulation is among most under 25yr old populations (except Africa) and among many under 45yr old populations.

So, the old are living decades longer than a generation ago but their adult children are having far fewer children.  The economics of this is a complete game changer and is unlike any time previously in the history of mankind.  None of the models ever accounted for a shrinking young population absent income, savings, or job opportunity vs. massive growth in the old with a vast majority reliant on government programs in their generally underfunded retirements (apart from a minority of retirees who are wildly "overfunded").  There are literally hundreds of reasons for the longer lifespans and lower birthrates...but that's for another day.  This is simply a look at what is and what is likely to be absent a goal-seeked happy ending.

In a short yet economically valid manner, every person is a unit of consumption.  The greater the number of people and the greater the purchasing power, the greater the growth in consumption.  So, if one wanted to gauge economic growth, (growth in consumption driving economic growth), multiply the annual change in population by purchasing power (wages, savings) per capita.  Regarding wage growth, I hold wages flat as from a consumption standpoint, wage growth is basically offset by inflation.  Of course, there is another lever beyond this which central banks are feverishly torqueing; substituting the lower interest rates of ZIRP and NIRP to boost consumption from a flagging base of population growth.  (There is one more boost to consumption, huge increases in social transfer payments primarily among the advanced economies...but while noted, these are a story for another day.)

The chart below is total annual population growth broken down by OECD nations (33 wealthiest nations...representing 1.3 billion people, OECD members), BRIICS (Brazil, Russia, India, Indonesia, China, S. Africa...representing 3.4 billion people), and the RoW (Rest of the World...representing about 3 billion people).  Takeaways - 1) total annual population growth peaked in 1988 and has been decelerating since falling 13% & now down 12m/yr from peak.  2) Growth has been shifting away from the BRIICS to the RoW.
Below, global annual total population change vs. under 45 annual population change broken down by OECD, BRIICS, and the Rest of World.  What should be clear...1) under 45 population growth has fallen by nearly 60% & is down 44m/yr from peak growth.  2) All under 45 population growth (net) is among the poorer nations of the Rest of the World.  Growth has shifted from rich to middle to poor nations and from young to old.  Those with little income, savings, and/or access to credit can't consume much.  Elderly on fixed incomes, declining vitality, and credit averse won't consume much.  Clearly, the impact of the slowing and shifting population growth on slowing growth of consumption should be easily understood.

Global annual population growth by GDP per capita.  OECD nations given an average of $40k per capita, BRIICS $15k per capita, and the RoW $8k per capita (below).  Annual growth in consumption peaked in 1989 and has been falling since...of course this is unadjusted for the big impact that credit has to increase real consumption.
Global annual under 45 population growth by GDP per capita further broken down by growth among OECD, BRIICS, & RoW (below).  The deceleration of global GDP per capita is entirely among the under 45 OECD and BRIICS which have nearly entirely ceased.  The only under 45 growth in consumption is among the decelerating RoW.

Below, 0-64yr/old annual global population growth vs. 0-64yr/old population growth among combined OECD, China, Brazil, and Russia vs global debt growth.  The surge in debt since 1988 coinciding with the collapse of growth among the wealth OECD and aspiring BRIICS (growth has fallen from 30m/yr to 3m/yr (90% decline) and growth among the RoW has entirely stalled since '88 at +55m/yr.  The central bank response to take interest rates to ZIRP (and now NIRP) has been an attempt to maintain consumption growth against declining population growth.  Only central bankers know what they'll do as under 65yr/old populations begin outright shrinking nearly everywhere but Africa?!?
A look at annual global populations; young vs. old (below).  The 0-5yr/old population has stalled but nowhere near so for the 75+yr/old population.  In 1950 there were ten "babes" for every 75+yr/ 2050, the two groups are estimated to be 1:1 but this estimate is likely to be far too optimistic if economic conditions continue deteriorating.

US 20-59yr/old annual population growth vs. the Federal Reserves FFR (%) and US total debt (below).  Federal Reserve actions have been and remain a simple (ultimately unwinnable) fight vs. the decelerating growth among the core US population since the early 1980's.  The great recession of 2008-'09 shouldn't be a shocker given the sharp 20-59yr/old population growth deceleration culminating in '07.

Below, Japan's 20-59yr/old annual population growth vs. BOJ interest rate and Japanese federal debt.  Japan's annual core population turned negative in '00 and interest rates hit ZIRP and debt creation took off.  Japan's plan to monetize likely well in excess of 100% and maybe ultimately 1,000% or 10,000% of GDP is a curious solution which may lead to an eventual hiccup which leaves Japanese society in absolute chaos (2nd chart below).  But if it were only Japan that had this plan...but alas, it is the same for all major central banks presently or eventually facing depopulation.  (Debt in chart below is denominated in Yen, not dollars).

Below, Germany's 20-59yr/old annual population change vs. debt to GDP.  Germany's 20-59yr/old population turned negative in '94 but the implementation of the Euro and Euro wide market (with the Maastrich treaty in 1992 and implementation Euro area wide in 1999) quintupled Germany's available export base under a now common currency (2nd chart below).  The impact was a stay of execution for Germany but a grinding, terminal cancer for the remainder of the Euro area.

Below, China's annual 20-59yr/old population change, Bank of China interest rates, and China total debt growth.  Annual Chinese core population growth has collapsed since '08 by 90% and will turn negative in 2018 and remain increasingly negative for decades thereafter.  The insane Chinese debt ramp to offset the declining population growth has no possible means to resolve in any manner but catastrophe. 
***Noteworthy, despite China's recent elimination of it's "one child policy", it should be noted that China's birthrates are higher than Japan, S. Korea, Taiwan, and many EU nations...none of whom have any policies restricting births and most with policies to encourage higher fertility.  The elimination of the "one child" policy in China is unlikely to have significant finances and struggling economies are far more likely to determine family formation in China and world-over.***

An economic and financial system premised on perpetual growth was bound to run into trouble (what do you do when you have taken a wrong turn?...apparently just keep going!).  The inevitable deceleration of population growth was the trigger that turned central bankers into pushers offering ever cheaper credit.  The lower rates drove unsustainable rates of consumption absent even further rate cuts and likewise drove overcapacity which likewise needed even lower rates.  But negative rates of NIRP are simply no longer under the heading of capitalism (a market that doesn't value capital likely isn't capitalism?!?).  When we've clearly changed "ism's"...we've crossed the Rubicon.

What happens as population growth turns to population decline is honestly and literally a complete and total game changer.  A flat to declining number of buyers and consumers opposite ramping elderly sellers plus their unfunded liabilities is a problem with no happy resolutions.  Currencies (what will constitute "money"), "free-markets", and perhaps the basis of civilization hang in the balance of the transition from high population growth to potential outright depopulation.

I believe this is the correct lens through which to view and understand why growth is perpetually weakening, why commodity overcapacity and slowing demand will only accelerate, why the Treasury market continues to see "buying" despite the near total absence of buyers (Treasury Mystery), why equities are a "buy" (but for all the wrong reasons), and why precious metal valuations are so extremely suspect in the face of a monetary onslaught. 

Thanks for reading and glad to hear your thoughts, corrections, and/or disagreements.

***All population data is from OECD and all debt and interest rate data is from St. Louis FRED.


  1. Chris,
    This is excellent work and done in a very clear and concise manner. What you have also shown here is that governments can in no way make up for the loss of the consumer population.

    1. Anon - thanks for reading and funny, I spent an entire article trying to say what you said in a sentence. All the best.

  2. Ending the piece you say, "precious metal valuations are so extremely suspect in the face of a monetary onslaught." The implication is PM are deeply under valued considering the huge debts incurred by sovereign governments. Am I reading this right because alternatively with a shrinking population perhaps PM values have peaked or are over valued. My take is PM should rise by a factor 3-10 over the next 5-10 years. Further I expect PM to be the best performing asset class over the next decade. Please clarify your forecast. Thank you.

    1. Trmist - thanks for reading and sorry to be a little cryptic regarding PM's. If valued against rising amount of "money", PM's look incredibly cheap. In fact so cheap their revaluation would likely be stunning. And that is precisely why I'm very concerned that they may not be allowed to find any sort of real market valuation (just as Treasury debt will not nor will housing prices nor will equities). A free market would revalue all these things in a manner that would undercut our present economy and society. So, I have no targets for any of these things because I believe they are not fundamental valuations but instead political / systemically important derived valuations. The implementation of ZIRP, NIRP, QE, etc etc are all means to avoid valuations premised on free market pricing. And if PM's are rigged but no one knows quite how they are does anyone know the durability or sustainability of the rigging??? Too many variable to solve the equation.

  3. Glad you got space at ZH. This is the holy grail of missing pieces. I'd like to hear folks like Chris Martenson's take.
    Good job.

    1. Thanks Doug - likewise, I'd like to hear Mr. Martenson's or other thinkers who can honestly discuss such matters without fear of scaring off clients or undercutting their own income.

  4. Nice work. Your charts are impressive and your analysis insightful. Keep it up.

  5. Something I've been banging on about for years---usually with the dismissive response that "they" will fix it---or 'come up with something'

    good comprehensive feature though, I hope it finds its mark somewhere, though I doubt it.
    Governments are locked into the same path as the rest of us, they can't stop and get off any more than we can. They can only use the hindsight of history to point to a future that looks the same---only better.
    That way they get voted into office, on promises that cannot possibly be met.

  6. Considering that ecosystems are still colapsing rapidly, we should hope growth slows further and faster. A smaller economy will make it easier to thrive on a little blue marble in space.

  7. "An economic and financial system premised on perpetual growth was bound to run into trouble."

    Capitalism was not based on perpetual growth. When Adam Smith wrote The Wealth of Nations in 1776, no one expected an economy could continue to expand forever.

    In fact, there was very little economic growth (production per capita) in the world before the mid-1800s.

    "The inevitable deceleration of population growth was the trigger that turned central bankers into pushers offering ever cheaper credit."

    Central bankers have pushed cheap credit so many times in history, unrelated to population growth, that it would be difficult to compile a complete list.

    "The lower (interest) rates drove unsustainable rates of consumption ..."

    Not true.
    The central bankers' goal was to punish savings to drive more consumption ... but that did not happen. I don't see any relationship of US Fed policy and the US personal savings rate in the past 20 years. People kept saving when they could. They did take more risks with their money "chasing yield", which Austrian School economists call malinvestment.

    "But negative rates of NIRP are simply no longer under the heading of capitalism (a market that doesn't value capital likely isn't capitalism?!?)."

    Companies are not paying negative rates of interest.
    Some central governments are, with the experimental "black swan" NIRP policy.
    No one knows how this will end because there is no other example in history.

    Japan seems to be leading the way with their population growth trend, many stimulus programs, and now their NIRP. I have never been to Japan, but based on reading and pictures of life there in 2016, I don't see Japan suffering.

    Predictions of a coming population growth slowdown catastrophe remind me of predictions of a coming climate change catastrophe I've heard for the past 40 years. It's easy to predict gloom and doom, but the predictions are hard to believe when no victims can be found. ... Back in the 1960s and 1970s I remember predictions of a coming population growth catastrophe!

    1. People are dying due to climate change. Thousands in Paris a few years ago, islanders have lost their homes and islands in the Paciific with half of some communities now in diaspora. And many are losing thier lives in the strongest storms in the historical record.
      RI is losing its coastline and houses along the shore.

      But actually a shrinking population is a GOOD thing. Less consumption is exactly what the earth needs.

    2. No one has died from climate change.

      The current climate is better than it has been in at least 500 years -- the Earth is greening from more CO2 in the air, and people have slightly warmer nighttime low temperatures, which most people prefer.

      Are you having some kind of climate nightmare fantasy?

      The climate has barely changed in 150 years -- an unusually stable average temperature compared with climate proxy estimates for the prior 4.5 billion years.

      I suppose you think the peak glaciation 20,000 years ago started melting, raising sea level 400 feet so far, from coal power plants and SUVs?

      There are huge new hotels being built on the Maldives atolls near sea level-- are all the investors stupid?

      Here's a picture of one of them:

      Prosperity requires MORE consumption -- I suppose you want the poorest people on our planet, with no electricity, to forever remain poor with barely enough food to eat?


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