Following the GFC, I had questions about our financial and economic system and found no adequate answers. In my quest to understand, I have answered many of my questions and in good part satisfied my curiosity. But it is time to quit spitting into the wind and the get back to work. If you know of an organization that could use someone like me, please let me know.
Thursday, May 19, 2016
Mother of all Head & Shoulder Patterns & China Just Completed the Right Shoulder
The global economy and finances are all about growth (increasing flow) and not about equilibrium (stock). The ultimate driver of growing economies and finance has been millenniums of population growth. A growing quantity of people has meant more buyers, more consumers, more demand. So, if the growth or flow of demand is waning...that should matter...a lot. Like entering an ice age after 10,000 years of relative warmth. The expected response to something like that would be all out. Not a surprise that 4 decades of central bank mandated interest rate cuts have been used to incent a decelerating base of consumer growth to debts untold. It's all in a vain attempt to maintain centrally determined rates of growth far above what rising population, jobs, wages, and savings can sustain.
QUANTITY of GROWTH
Take a gander at the chart below, annual global population growth from 1950 to present and the OECD population growth estimations through 2050. You might notice a...HEAD AND SHOULDERS pattern!!! 1988 was the head of annual global population growth...1973 was the left shoulder and 2012 was the right shoulder.
But what if the OECD and their future estimates are wrong??? The chart below is annual population growth (in total) vs. the annual growth of the under 45yr/old global population. The base of population growth (young) has caved in and only been masked by the 45+yr/olds living a decade or two longer than their parents. However, this extension of lifespans vs. the previous generation is a one off. The current young are not likely to live decades longer again than the current generation. Simply put, we have significant population longevity among the wealth and rapidly waning population growth most everywhere except the very poorest. As you may have noticed, it's a night and day difference.
The chart below is the ultimate visual of stabilizing global population of young vs. globally swelling elderly populations. What was a 9-1 ratio of babies (0-4yrs/old) per 75+yr/olds in 1950 has become a 2.7-1 ratio in 2016...and estimated to be a 1-1 ratio by 2050. The global growth of young has essentially ceased but the growth of old is skyrocketing.
QUALITY of GROWTH
Where the growth is coming from broken down. The chart below is global population growth split out among wealthy OECD, aspiring BRIICS (Brazil, Russia, India, Indonesia, China, S. Africa), and the RoW (rest of the world). From an economic standpoint, the sources of quality growth are slowing and lesser sources unable to replace this loss. Simply put, those with income, savings, and access to credit are able to consume significantly more than those without.
A focus solely on the population growth of those under 45yrs/old removes the confusion of the older generations living far longer. Below, as of 2016 all net under 45yr/old net population growth is among the poor RoW as all growth has ceased among the OECD and BRIICS. Among the RoW, the majority of all younger population growth is Africa. The same Africa where 1/3 of the nations have average incomes below that of Haiti. Africa is not an engine of consumptive growth.
The chart below is a simple multiplication of under 45yr/old annual population growth by average GDP per capita (capability to consume). One look at that chart, and the implementation of NIRP & ZIRP plus the global debt bomb should be no surprise. The collapse of growth has been underway for decades and central bankers and central planners are willing to do anything to maintain the appearance of "growth".
Quality of Growth Really Matters
The final charts below show the impact of quality (income, savings, and especially access to and utilization of credit) over quantity of population growth. The chart is a breakdown of oil consumption by the wealthy 1.3 billion OECD residents, 3.8 billion persons of China-India-Africa, and the 2 billion "Rest of the World".
The chart below highlights the impact of rising wages but particularly (in China's case) the impact of rising credit / debt) in pushing Chinese oil consumption so far in advance of India or Africa over the same time frame. Quantity + "quality" of credit growth.
And a close up on China's rapidly slowing quantity of adult population growth vs. the equally rapid escalation of debt in place of population growth...and the impact to maintain China's "growth". This sort of growth, particularly credit creation, is likely not reproducible in India or Africa (thank goodness for India and Africa).
And below, another view of China's decelerating growth among its adult population (and as of 2018, outright declining adult population) and the only answer to maintain "growth" has been debt on an unprecedented scale. What happens in China and globally as China's depopulation sets in...for decades....is unknowable.
China was, in essence, the right shoulder to the greatest head and shoulder pattern in the history of mankind. Central banks and federal governments will do everything in their power to maintain the present system. They will attempt anything and likely everything to maintain what ultimately cannot be maintained. Unfortunately, no one knows how much is too much and the economic, financial, and societal ramifications. Invest accordingly?!?