Monday, December 5, 2016

The World's Only Hope is Bankruptcy & Reorginization...Otherwise, Worst Case Scenarios Are In Play

Crudely economically put, people are units of consumption and from a growth standpoint, it doesn't matter if you have 7 million or 7 billion people on earth.  In terms of growth, all that matters is the year over year change in the number of people (new consumers) multiplied by their ability to consume or GDP per capita (synonymous with purchasing power parity or PPP), savings, and access to credit.

Plainly - the worlds population ceased growing in about 1988...since that time the world is only growing older.  Below, global births per five year periods plus UN medium and low estimates.  The double peak from '85-->'90 and again '10-->'15 is clear and as for the future, the reality will be somewhere between the medium and low estimates, but certainly declining births will be the order of the day.

The chart below highlights global births per five year periods ex-Africa but plus UN estimates for medium and low future births.  Again, the reality will likely split the UN estimates but a clear peak in the late '80's and huge deceleration of births since is undeniable.

And then there's the surging births in Africa plus medium and low UN future estimates.  But sadly, absent income, without savings, without access to credit, and the world awash in overcapacity as it is...this population growth is simply economically going to remain poor beyond belief and is not and will not be of any economic importance.

Africa in context...HERE

The chart below shows the annual growth in the 0-64yr/old population and total global debt.  Notice that as annual growth peaked in 1988 and has been decelerating since, debt has skyrocketed to maintain an unsustainable level of growth...and the folly only gets worse every year as accelerating debt is required to make up for the decelerating population growth.

And if we split global 0-64y/old annual population growth between the nations that consume 70% of the globes oil (the 35 OECD nations, plus China, Russia, & Brazil) vs. the Rest of World; the consumers 0-64yr/old population growth is at an end.  Consumer nations are entering the process of depopulation among their under 65yr/old populations.  With great regret the truth is that deflation, depopulation, and a depression looms unlike anything we have experienced since the black plague.

And a close-up on the combined OECD, China, Brazil, & Russia 15-64yr/old annual population change (blue/red columns), the federal funds interest rate (black line), global GDP (green line), and global debt (red line).  What little demand growth remained has ended.  Ever fewer consumers, fewer tax payers, fewer buyers of imports will be matched with surging over 65yr/old populations mandated by law to sell assets & be showered with their unfunded liabilities.  A non-linear crack in the system is likely just around the corner and the veneer of normalcy will be over.

So, what does the world population look like with Africa removed (or ex-Africa)?  Below, global ex-Africa population with split out showing under 45yr/olds and 45+yr/olds.  These are the nations that consume 96% of the earths oil (and in general commodities, exports, etc.).  Plain to see is all their population growth is among the old with declines setting in for the under 45yr/olds.
The global ex-Africa under 45yr/old population have essentially peaked, will flat-line for a decade, and then begin what appears to be a very long decline.  THAT IS A BIG DEAL.  This is the population capable of child birth and family formation.  With interest rates already at zero, debt and overcapacity rampant, and no population growth anywhere that matters (economically)...that means the current game premised on growth is over.  The only question is what will the new game look like?  Clearly the issues we face mean free-markets will not be allowed nor is a democracy seemingly capable of voting for long term solutions that mean significant short term pain.  In truth, neither functioning markets nor functioning democracy's appears to exist any longer.

And just to bring it home for American's...US GDP change per period vs. total credit market debt owed vs. Federal debt, both also per period.

This will worsen significantly over the next eight years due to structural problems...I wish Donald all the best but he really doesn't have a snowballs chance in hell to grow the US or world out of trouble.  The only real course is the same course Donald has taken for his own business' when they were in trouble...bankruptcy and reorganization.  Otherwise, it's almost surely just marking time until we all find ourselves in a worst case scenario outcome.  I hope I'm wrong in spades but for the life of me, I sure don't see any other way out than admitting we took a wrong turn and suffering the pain that comes with change.