Thursday, October 20, 2016

Why Exporters Are in Double Trouble

The chart below shows the annual core population (0-64yr/old) change of the OECD representing America, most of Europe, and the bulk of the worlds wealthy nations (OECD members), plus China, Brazil, and Russia.  This core population growth peaked in 1968 at +31 million a year and has fallen 90% to just 3 million year as of 2016.  The core population is estimated to peak out in 2018 and by 2050, decline by <-246> million or <-9%>.
This is terribly important because these nations which make up 40% of global population are responsible for 70% of the earths oil consumption...and an even greater percentage of global (export) consumption.

Also noted on the chart are the years the largest exporters core populations (their own internal markets) began declining.  For example, Japan's core began shrinking in 1989 but the "importer" core population was still growing rapidly (up 26+ million annually) helping to offset the decline.

OK, just 3 variables...
  1. Annual population growth of the 0-64yr/old population
  2. GDP (Gross Domestic Product)
  3. Debt
First, Japan's core population (0-64yr/olds) began declining in 1989.  Since then...
  1. Japan's core population has declined by 17.5 million persons or a 16% decline in population. 
  2. By 2050, the estimates are that Japan's core population will fall (from peak) by 50 million persons or a 46% decline. 
  3. Since Japan's core population began declining, Japanese GDP has risen by $1 trillion while Japanese federal debt has risen $9 trillion.

How did Japan survive this?  Exports.  Roughly 20% of Japan's GDP comes from exports...primarily to the other 34 OECD nations, China, Brazil, and Russia (these nations combine account for 40% of earths population but 70% of global oil consumption...and an even greater % of general consumption).

Germany (chart below) chose a different route than Japan to deal with it's population crisis.  First, enlarging it's consumer base via reunifying with East Germany in 1990 and then opening up European markets to German exports via the creation of the single currency EU.  Germany essentially quintupled it's consumer base for German exports absent the slowing mechanism of a strong Deutsche Mark.  Since the advent of the EU, exports as a percentage of German GDP have nearly doubled (26% to 46%).  The results for the rest of the EU turned into German importers, decidedly "less good".However, the EU core population peaked in 2010 and is now in decline.  By 2050, the EU core is estimated to fall 42 million or 10%.As the chart below shows, China's core population begins it's own terminal decline in 2017.  But China didn't wait for the core population to peak before it began ramping it's debt load into the stratosphere.  Since '07, China grew it's debt load +$27 trillion to net a rather lousy return of +$8 trillion in GDP.  Alas, China's solution was a debt fueled binge of building infrastructure, factories, & 50+ million vacant units of housing...for a population that is now contracting officially needing less housing every day?!? 

2017 through 2050, China's 0-64yr/old population is estimated to fall by 217 million or a reduction of <-18%>.  Who knows what sort of mind boggling debt binge China will attempt as it's consumer base officially begins it's long contraction?As for the US, the 0-64yr/old population (columns represent 5 year periods of population growth, chart below) is expected to continue the deceleration it has been on since the late 1990's.  Federal debt has been growing nearly twice the pace of GDP since the core 0-64yr/old population growth broke down...and far worse is dead ahead.
A quick close up of the US 0-64yr/old population growth (columns represent 5 year periods of population growth, chart below) significantly decelerating vs. waning GDP growth but fast accelerating debt.Conclusion:
When a nations core population ceases to grow or outright falls, in order to grow, the nation must find growth externally (exports).  However, when the pool of potential importers with means (core population of OECD, China, Russia, Brazil) is itself no longer growing...well, growth is no longer achieved via greater consumption.  Instead, "growth" becomes a game of ever greater debt loads (via ZIRP and NIRP), monetization, QE, and a hundred other means to inflate the numbers absent actual economic activity following through.

Essentially, the core global consumer base is now falling and will fall for decades...fewer consumers every year.  Attempts to have ever fewer buy ever more with ever lower interest rates has run its course and is no longer of any value.  The game is up and expect some very sore losers to begin acting very badly very soon.

Extra Credit - Here's another Asian exporter about to fall off the "depopulationary" cliff.  By 2050, Korea's core population is estimated to fall by 14 million or 32%.  However, Korea gets over 50% of it's GDP from exports...I'm guessing it will be a very big problem for exporters all over the world that many of their own core populations are now shrinking and the core of the importers (with means) are set to shrink by 245 million through 2050.