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Thursday, December 15, 2016

American Federal Debt and What America Has to Show for It

1- What America got for it's first trillion and what became of the last $19 trillion...Reflections on Infrastructure
Plus some odds and ends...
2- Some Population and Demographic Data Nightmares
3- Why You Can Mark Rural American Real Estate to Zero (literally zero)

BTW - I'm a little short on time nowadays so please pardon any typos or the total lack of editing.  With that, away we go.

What America got for it's first trillion and what became of the last $19 trillion...Reflections on Infrastructure
From 1789 to 1981 (192 years), the Federal government spent $1 trillion above and beyond what the nation collected in taxation.  America bought, built, and fought a lot.  During this period, the Federal government purchased and built pretty much everything that we now recognize as public America.

From 1981 to present (35 years), the Federal government spent $19 trillion beyond taxes collected...and really has almost nothing to show for the 95% increase in debt.

A quick list, by period, of what the Federal government got for all that debt.

1789-->1912 $0 to $2.9 billion (+$2.9 billion)
  • Louisiana purchase 1803
  • Eerie Canal 1825
  • Gadsden purchase 1853 (S. Arizona, S. NM)
  • Homestead Act (160 acres)
  • Civil War 1861-65
  • Transcontinental railroad 1863-69
  • Alaska purchase (Seward's folly) 1867
  • Hawaii, American Samoa annexation 1898-99
  • Panama Canal 1903-14
1912-->1940 $2.9 b to $40 b (+$37.1 billion)
  • WW I 1914-18
  • Hoover Dam, Grand Coulee 1931-36
  • TVA & WPA 1935-43
    • WPA's building program included the construction of 116,000 buildings, 78,000 bridges, and 651,000 mi (1,047,000 km) of road and the improvement of 800 airports.

 1940-->1946 $40 b to $270 b (+$230 billion)
  • WW II
  • Manhattan Project
  • GI Bill 1944-56
1946-->1961 $270 to $290 (+$20 billion)
  • Marshall Plan
  • Korean War
  • Interstate Highway system 1954-91
  • NASA 1958
1961-->1981 $289 to $1 trillion (+$700 billion)
  • Apollo Space program 1961-69
  • Vietnam War 1965-73
  • Bulk of Nuclear Power Plants built
1981-->2008 $1 t to $8 t (+$7 trillion)
  • Cold War ends 1991
  • Persian Gulf War 1991
  • Iraq War 2003-2010
  • Afghanistan War 2001-present
2008-->2016 $8 t to $20 t (+$12 trillion)
  • ???  (seriously, anything noteworthy for $12 trillion?)
But, according to the American Society of Civil Engineers most recent assessment (2013), the following infrastructure types are now considered poor and in danger of failure over the next decade requiring $3.5 trillion in maintenance and upkeep.
  • Levees, Inland Waterways, Dams
  • Drinking water, Wastewater, Hazardous Waste
  • Energy Grid
  • Transit, Roads, Aviation
  • Schools
The infrastructure considered mediocre...
  • Bridges, Rails, Parks, Ports.
The only area of American infrastructure considered good...
  • Solid Waste (I assume meaning America's dumps and recycling programs)
So, we built a massive infrastructure footprint from 1900 to about 1980 and have generally ceased building new infrastructure since.  Since '08, the Federal government has created unprecedented debt but essentially didn't use the opportunity to at least get something (of substance) for all that debt in revitalized US infrastructure.  Instead, we now face the daunting task of attempting to maintain and modernize this gigantic footprint...and haven't appropriated or budgeted for this task as we head into a demographic nightmare...

Population and Demographics...No "Green Shoots" Here
But the US population stopped growing years ago, and now the population basically only grows older.  The chart below shows the US 0-20yr/old population...note the massive increase of 25 million from '50 to '70 (a 46% increase) vs. the miniscule increase from '70 to 2015 of 3 million (a 4% increase).  The dashed lines are the UN medium (maroon) and low (green) estimates for 0-20yr/old US population growth...the blue line the average of the two and a good guestimate what the actual population will likely be.  Absolutely noteworthy is the continued population flat-line, leaving the 0-20yr/old population at 1970 levels all the way out to 2050.

If we broaden out (below) to show all age groups in 1950, 2015, 2050 and ultimately 2100 estimates.  The young are on the decline, the core flattening out, and the elderly population rocketing up.
From '50-->'85 population growth was balanced among all three groupings (below), by '85-->'15 growth among young broke down but was replaced by growth among the elderly.  From 2015-->'50, the population of young is estimated to decline, core growth fall by 80%, and the elderly living far longer than previous generations provide all the population "growth".  By 2050-->2100, there are estimated declines among the young and significant declines among the core but total population continues growing due to elderly refusing to die.
Finally, just in case that horse ain't dead quite more beating.  The chart below outlines the changes over the next 15yrs by five year increments.  This is a demographic catastrophe, American style...the point of the population and demographics...of course we don't have any money to update or modernize infrastructure (it's all gotta go to keep America's unfunded liabilities under wraps...and perhaps its time to fund another pointless war?)  If you interested in the picture globally, HERE or HERE.

Why You Can Mark Rural American Real Estate to Zero (literally zero)
All the demographics reminds realtors say; it's all about location, location, location.  Although I'm showing national trends, the reality on the ground across the nation is wildly different.  The total population is growing rapidly in the US West and South...not so much in the US Northeast and Mid-West (chart below).

But the number of young in America hasn't appreciably changed in 45yrs...and isn't likely to over the next 35yrs (chart below, again)...the South and West's urban/suburban gains are the MW and NE's losses.  The declines across rural America of young, educated, motivated youths are acute.

The regional component to this story...after graduating from high school or college, the young adults are migrating from rural to urban/suburban areas in search of opportunity.  Particularly leaving the rural NE and MW although rural West and South are seeing the same trends of emigrations, particularly to the urban/suburban West and South.

Rural vs. Urban
America's "rural" population ceased growing about 1940 (growing by only 2 million from 1940 through the 2010 Census).  Meanwhile, America's urban centers have seen almost 99% of the US population growth since the onset of WWII (+174 million from '40-->'10).

The implications are pretty nasty - "rural" America's total population has gone unchanged since 1940, but the make-up has significantly shifted...setting up an inverted population pyramid across rural America of fast aging adults, declining jobs, and declining populations of young adults.

The big bubble isn't San Fran, CA or Portland, OR or anyplace prices have skyrocketed.  If prices fall, those urban locations will almost surely still have demand as there are housing shortages, even if only to flip residential properties to rentals.  Not saying prices won't go down...but they won't likely go to zero.

The biggest bubble is rural America where prices should have but didn't tumble.  The number of new homes is actually rising faster than the total population growth in the MW and NE since 2000 (chart below).  In fact, the growth in the West and South of new homes to rising population since 2000 is fairly typical and in-line with historic norms.  It is rural America and the NE and MW that require the low interest and mortgage rates to avoid a collapse in prices...not the growing urban/suburban West or South.
In short, the population of young is collapsing in rural America while the existing rural home owners are fast aging and soon to be selling en masse (one way or another).  But there is a fast shrinking number of buyers (and jobs among them).  Plus, the impact of falling and now quickly rising interest rates is a real killer (more details HERE or HERE).

The real kicker are the property taxes in these rural counties.  Too many public service retirees coming up in short order in these rural counties with underfunded pension plans...means taxes on those properties will ultimately need to rise (significantly) to make these public servants whole in their retirement.  Put it all together...and you can see why some or much of America's rural real estate is very likely to literally be worth zero...zilch...nada.  I'm truly sorry for this result for so many very good people who didn't deserve this outcome.

1 comment:

  1. Received an email and thought I'd update the RE portion with the following that I sent in reply...

    Yup - there are some rural places with great natural beauty or some other draws...and they may continue to see population growth. On a county by county basis, the average ages of the population in rural America is 15, 20, even 25yrs higher than in urban areas. And many of these rural counties are seeing the average age increase by 1yr annually.

    Job growth is in the urban/suburban counties and job declines across the remainders of counties.

    The real kicker why these properties are going to zero are the property taxes. The average pension fund is seriously underfunded and premised on 7.5% annual returns to keep the pension payouts flowing. The means for counties to make up the difference is property tax hikes...big hikes that will generally make home ownership in these places prohibitive and chase away what little business and young persons are left. Sure, you will be able to buy these places for next to nothing but they will be huge tax liabilities.

    So, as you note, there are places that are special which will not be going to zero...but for most of the rest of America's rural RE...I don't see a bright future.


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