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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.
Conclusion

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?!?

8 comments:

  1. How can you have a chart pattern in something that does not trade? Huge mistake about how technical analysis works.

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  2. LOL... please do not try to trade this chart! These are people and you are correct we don't trade people based on TA...or trade people period. Thanks for pointing this out.

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  3. The dataset shown indicates why the imf and nwo have been hellbent with repopulating USA, Europe and Canada with much faster breeding immigrants. Ends justifies the means

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  4. "YOU WROTE:
    The ultimate driver of growing economies and finance has been millenniums of population growth."

    MY COMMENT:
    That statement is false, and demonstrates a lack of historical economic knowledge.

    The modern period of economic growth started in the mid-1800's, driven by productivity enhancing inventions.

    Growth is best measured by GDP per employee, to eliminate the illusion that population growth is important.

    If a larger percentage of the population takes a job, and contributes to GDP growth -- that's one way to create growth. The hard way.

    If the working population becomes more productive on the job, that's another way to create growth. The smart way.

    Prosperity comes from a larger percentage of the population working, and workers producing more per hour of work.

    A concern about unexpected changes in population growth should be directed at senior citizen "entitlements" and pensions -- not at economic growth.

    If those entitlements and pensions were assuming constant population growth, and reality was a declining population growth rate, there will be fewer workers supporting retirees than originally planned.

    That may result in underfunding, and the plans may not be able to pay 100% of the benefits promised decades earlier.

    That's a serious economic problem, but solving it is possible -- perhaps a lot of baby boomers will keep working longer than they originally planned to (which promotes economic growth) and/or they will end up living with their children after they retire (rather than living on their own).

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  5. The last commenter seems to have missed the role of ecological collapse.

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  6. Have you read Gail Tverberg's blog. Firstly the end of cheap energy (oil) and now the end of cheap debt is her explanation for our demise. Your demographic analysis adds another layer of meaning to this sorry scenario.

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    Replies
    1. Hi Burma - thanks for reading and yes, I've read Gail's excellent work. Hard to know which is the causation and which the correlation...but I'm pretty sure they are all interwoven. For me, I began my search looking at resource depletion and the like, but in the end I realized the first thing that gave out was population growth in a system which required ever more consumers. I feel we would have run into the wall on the commodity front or the many other potential fronts. However, it was the human commodity which gave out first...of course had we kept growing at the post WWII rate, the resource issues would have hit first. And suddenly, depopulation began from the bottom up and the whole system was turned on its head (interest rates to ZIRP and now NIRP) and not just unrepayable debt but unserviceable debt at anything but ZIRP. Whether it was bad assumptions or something worse, I've no real idea but always glad to hear folks thinking. Thanks again. Chris

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  7. Excellent analysis Chris. As you show, there is always more to all this than what initially meets the eye. for me it certainly adds a clearer perspective to the foggy global economy picture that even Martin Armstrong would be proud of. Well done and keep up the good work
    cheers
    Paul

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