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Sunday, October 9, 2016

The Ingredients for Economic Growth No Longer Exist...New Normal Goal s/b Minimal Contraction, Not Growth

The American and global economic system is premised on growth.  Absent quarter on quarter or year on year growth, a recession or depression ensues.  The ultimate basis of this growing demand has been a growing population and as this growth slowed, interest rate cuts and resultant rising debt loads.  But we need to divorce the growth of the young, the real time foundation of natural demand growth, from the longevity effect of the elderly and interest rate impacts.  To solve the equation, we need to isolate the variable.  In this case, true population growth.  We'll remove the misleading, non-repeatable factors of population longevity (the population of elderly living decades longer) and decades of interest rate cuts. 

A simple focus on the headwaters of global growth represented by the 0-4 year old population tells the story that defines our time & the story that is pre-eminent to understand the ongoing financial and economic crisis.  The global 0-4 year old population growth sharply decelerated in the early 90's and total population of 0-4yr/olds has now peaked, beginning its indefinite secular decline (the decelerating growth in % terms began even earlier and is far more dramatic due to the far larger denominator, the total population).  Combine this decades long stall in population growth among the young feeding into older portions of the population with the exhaustion of interest rate policy at ZIRP / NIRP and the ensuing huge debt / unfunded liabilities and the result is that natural growth is no longer possible.  Perhaps the true goal at this point should be minimizing the secular contraction rather than accelerating dependence on ZIRP / NIRP, monetization, and the debt fueled lunacy now necessary to synthetically achieve GDP "growth".

The 0 through 4 year old global population of young (the headwaters of population growth and ultimately basis for growing housing demand, infrastructure, factories, increasing commodity demand. etc.) is really indicative of what's happening.  After the global population of young rose rapidly from 1950 to 1990, up by 313 million or nearly a clean doubling (337m to 650m), the population of young has essentially stalled since, growing by just 19m from 1990 until now (650m to 669m...chart below).  But, now the depopulation from the youngest begins even according to the highly optimistic estimates of population change that see the 0-4yr/old global population actually declining by <-5m> from now through 2030 (all data from OECD & US Census).  More realistically, collapsing birth rates world over will result in significantly larger population declines among the young.  The era of true population growth has ceased...and the implications for an economic system premised on perpetual growth, that is turning into an inverted demographic pyramid, should be plain.  Also plain should be the propensity of central bankers and federal government officials to do literally anything to buy another day in the sun no matter the ultimate wreckage.
Since 1990, nearly all global population growth is taking place from people living decades longer...not an increasing number of young.  This is not growth but a one time increase due to longevity and, at latest, by 2050 there will be as many 75+yr/olds as 0-5yr/olds (this was a 1-10 ratio, respectively, in 1950...chart below).

What people struggle to understand is that our present system is all about growth and it is the population growth of .05% or 1% which drives economic activity magnitudes larger. This relatively small population growth % drives huge spending on infrastructure, home building, factories, supply chains, etc.  The differing impact of 1% or 0.1% population growth is felt far beyond a 1% or .1% economic growth...more like 10x's that impact.

But population growth isn't slowing across the board.  It is the huge population declines of the young among the combined wealthy 35 OECD nations (list of members HERE), China, Russia, & Brazil vs. the still growing but decelerating RoW (rest of the world).  So, the 0-4yr/old combined OECD, China, Russia, and Brazil population peaked in 1991 and has steadily declined since, now down <-22%>.  The combined 0-4yr/old growth among the relatively poor RoW was barely able to offset the declines of the relatively wealthy developed since '91 (chart below).
The combined OECD nations, China, Russia, & Brazil represent 40% of world population but consume 70% of global oil (chart below).  But it's not just oil they consume, they likely supply 70%+ of general global consumption and the massive contractions of their populations of young is contracting demand and economic growth (try as CB'ers may to use QE and interest rate cuts to incent ever greater leverage to falsely maintain higher levels of demand).

Only decades of interest rate cuts to incent massive debt loads (illustrated by the chart of US FFR % vs. US debt, below) plus the one time longevity effect of the older population living longer have masked the true economic declines underway.

For the next couple of decades, the earth will suffer overpopulation from the growing total global population while simultaneously depopulation of the young wrecks economic havoc among the developed / developing nations.  Year by year this declining young population (& declining demand) will be working it's way through economies until total population growth will cease.  Country by country, national populations are set to collapse.  Some examples...

Japan's 0-4yr/old population has collapsed by <-58%> from peak...and estimated to be down over <-75%> by 2050.  This means Japan's total population is ultimately set to fall by the same stunning amounts.

China's 0-4yr/old population has fallen <-35%> from the '91 peak and estimated to be over <-50%> smaller by 2050.  It simply follows that China's total population will eventually fall likewise as the declining populations of young work their way through.

From the 1967 peak, the European Union's 0-4yr/old population has fallen <-11m> or <-29%>...and is estimated to ultimately fall <-35%> by 2050.  The EU immigration crisis has everything to do with attempting to counteract this internal trend toward depopulation.

As for Brazil, it's 0-4yr/old population peaked in 1986 and has fallen <-5m> or <-28%> since...and by 2050 estimated to be down by <-51%>.  Again, this is really saying Brazils population will ultimately fall 50%.

For the US, since the 2010 Census, every new estimate of the 0-4yr/old population has quietly been significantly revised lower.  According to the '08 Census estimate, the 2050 0-4yr/old population would be in excess of 28 million.  As of their latest estimate (below), young growth has been reduced by 65% from an estimated increase of 6.2 million to an increase of just 2.1m.
And the ongoing and accelerating collapse of birthrates in the US (chart below) are sure to mean even further downgrades to growth...even more likely will be outright declines.  Even in the US, population growth is fading and the more likely economic scenario is also no growth or outright declines.

And finally, even India saw peak 0-4yr/old population in 2006 and Indian population headwaters are now 3 million fewer.  A secular declining population from the bottom up is underway from the worlds second most populous nation and each subsequent check on Indian birthrates continues to show "unexpected" declines.

This leaves only Africa and a select number of the poorest nations on earth to account for nearly all population growth among the young and subsequent economic growth.  The fly in the ointment...a third of the nations in Africa have average incomes below that of Haiti!  Simply put, population growth among the poorest does not and will not replace the population declines nor declining demand from the wealthy nations...and without the developed nations growing demand, the poorest have no avenue to export themselves to developing status.

Economically, demand is peaking and will decline indefinitely.  Recession and depression will no longer have meaning as these are short term downturns (extreme in the case of depression) within a period of secular growth.  Instead it will be short bursts of growth that will be celebrated and break the long secular contraction we have entered.  The current economic system premised on perpetual growth of demand leading to perpetual asset appreciation is broken.  Ever lower rates to incent ever fewer people to take on ever more debt is simply a recipe for true disaster.  Time for a new paradigm...and quick as the bridge to nowhere the Fed has built is about to run out.

PS - If you are interested in more or slightly different ways of looking at this topic, please visit this excellent site Our World in Data.  Truly eye opening.  Also, all OECD data from the article can be retrieved at


  1. Chris, love your work. Thanks!

  2. Time for a new paradigm? Suggestions? I agree change is and will increasingly be needed moving forward, but what are the proposed solutions? Looks like most proposed solutions I have seen or can think of require short term pain, perhaps intensely so, for long term gain. This usually isn't politically viable outside of a "crisis" so when will the crisis occur that will allow for wholesale fundamental change in our monetary and fiscal system?

  3. YOU SAID:
    "The American and global economic system is premised on growth."

    That is not true.

    Our economic system was premised on the incentives of profits, division of labor and free trade.

    There was barely any economic growth before the mid-1800s.

    The economic growth today consists of productivity growth and work force growth.

    Work force growth is the minor factor, and does not require population growth.

    There are a huge number of working age people in the US who could enter the workforce.

    Many jobs do not require physical strength and could be performed by most people over 65 years old -- and a lot of baby boomers are staying in the workforce longer than their parents did.

    The only "crisis" is the weak productivity growth -- there was a brief surge from the invention of the internet, and nothing much since.

    Another "crisi" is the Fed holding down interest rates and encouraging excessive debt -- too many companies borrowing money to buy back shares and investing too little on R&D and new plants and equipment.

    Japan is a leading indicator of the problems -- they seem to be surviving so far.

    1. We have a monetary system based on credit, so growth is required to pay back the principal plus interest. Debts cannot be honored without growth; someone will be left holding the bag.

      You mention productivity and work force growth. Even if productivity increased and more people joined the work force, who would buy the extra goods if populations are declining? There's no reason to increase production if your consumer base is shrinking.

      Buy backs are a symptom of the problem - corporations don't see enough growth opportunities so they're returning capital to shareholders instead of investing in growth.

      Japan faces a population decline of 75%. Surviving? Looks more like rapid progress towards extinction to me.

    2. @ Cliff - James Lucas' response is exactly the point. Ever lower rates to incent ever more debt (primarily mal-investment at this point in a world awash with overcapacity) among a declining population. Mindboggling folly perpetrated upon the world by its supposed fiduciary.

  4. "Even in the US, population growth is fading...". The US is projected to have a population of 450 million by the end of this century. Only a reckless population denialist would describe this as population growth that is "fading".

    1. Hi Anon - as of 2008, the US Census Bureau estimated the total US population would be 439m by of 2014, the US Census Bureau has downgraded US population growth by <-41m> to 398m by 2050.

      The bulk of the downgrade is among the 0-24yr/old population growth. Census Bureau now estimates 0-24yr/old growth through 2050 to be 28 million less than in their '08 est., (2050 0-24yr/old total population was est. to be 141m and is now est. to be 113m).

      The remainder of the downgrade came among the 25-44yr/old population...there was a was a sight increase among the 45+yr/old population segment.

      Due to birthrates remaining below Census Bureau estimates, further downgrades are almost a sure thing and nearly all the downgrades will again be among the population of young. The Census still estimates the 0-24yr/old population to grow by 8 million by 2050...would not be surprised to see this cut in half by the next updated estimate.

  5. "Since 1990, nearly all global population growth is taking place from people living decades longer...not an increasing number of young." This assertion is false. While increased longevity is undoubtedly a factor in population growth trends of recent decades, fertility rates and demographic momentum are by far the most dominant force. determining population growth. Most of recent population growth has taken place in countries that have high fertility or large populations experiencing demographic momentum. In addition, the path of future population growth is almost entirely dependant on whether and how fast fertility falls in high fertility countries (which also indirectly affect population growth elsewhere through migration). Don't take my word for it - read the UN population projections, or apply common sense. Our current, historically 'low' average fertility rate at the global level is still a population-inflating 2.5 children per woman. Combine this with a relatively youthful global population and you can see why Bradshaw and Brook (2014) found that there's no calamity, war or restrictive policy that could stop the disastrous march of global population growth.

    1. @ Anon - I think your issue here is with the UN as that is where the OECD is getting this data. As I showed, the global population of young rose rapidly from 1950 to 1990, up by 313 million or nearly a clean doubling (337m to 650m), the population of young has essentially stalled since, growing by just 19m from 1990 until now (650m to 669m). 0-4yr/olds are now estimated to fall by <-6m> from now until 2030 (669m to 664m).

    2. Countries with high birth rates, primarily in Africa, are being offset by countries with extremely low birth rates for the net no growth state of the 0-4yr/old population.

  6. Can you post a link to the Bradshaw and Brook (2014) please? i would enjoy the opportunity to read the source material for your dissenting argument. Thank you, sir.


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