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Tuesday, January 3, 2017

America's Supposed "Enemies" Are Literally Disappearing...but They Won't Likely Gently Fade Away

China, Russia, and Iran seem to be the most frequently mentioned state level "enemies" of America (not my view but that of the federal government).  This article offers a different reason why these nations likely fear America, why America may need to fear them, and why they may band together in WWIII...all in under five minutes.

To start, we should understand our "enemies" better.  First, there are about 1.6 billion persons living in these 3 countries (1.38 billion in China, 144 million in Russia, & 80 million in Iran).  According to UN data, these combined nations are essentially at their total population zenith (absolute top in 2025) and then the depopulations will be underway for decades (chart below).  By 2100, the UN medium variant estimate suggests their combined population will have fallen over 25% or declining in excess of 450 million inhabitants.
This is nothing new or anything associated with recent events...the fertility rates in these nations have been declining for decades (chart below).  All three nations have converged somewhere around 1.6 children per female, below the natural replacement rate of 2.1 and well below the global average of 2.5.

Their total combined population is about to peak, but their populations of young peaked long ago and have already collapsed.  Since peaking in 1975, the combined population of young in these nations has consistently fallen.  It is now down by 30% or a decline of 130 million fewer young (0-15yrs/old) today than 40 years ago (chart below).  The decline in young is estimated to continue by another 60 million by 2050, if current trends persist (this would be nearly a 50% decline).

As for the 15-40yr/old population (chart below), it peaked in 2005 and has already declined in excess of 65 million (about the same number of total deaths incurred globally during WWII...just for some scope).  The declines already seen in the young population will work through the 15-40 young adult population with a likely fall of nearly another 200 million by 2050.

What is so significant about the declines of this 15-40yr/old population?  Only this segment can bear this population is in decline, even an increase (unlikely as it is) in the fertility rate wouldn't be able to offset the declining total number of potential mothers.  A de-populationary loop is underway.

And then the 40+yr/old population which will continue to skyrocket until it's zenith somewhere around 2040 (chart below).

The chart below pulls it all together.  The under 40yr/old population is collapsing, the elderly population is the only "growth" among these nations.  Said otherwise, the number of persons in these nations capable of bearing children (or arms) is rapidly collapsing.  Conversely, the 40+, 50+, 65+yr/old populations are living decades longer ("population longevity"...rather than growth).

America's self-declared "enemies" are very literally in the process of dying off and not reproducing or replacing themselves (not unlike so many other nations).  The economic, financial, and political ramifications of nations facing collapsing internal demand is dire and unpredictable.  Each of these nations faces the reality of fewer homebuyers, fewer taxpayers, fewer consumers every day than the day before.  No amount of debt (particularly in China) can keep demand rising...the only hope for these nations are surging exports.

But the foundation of economic growth, a growing core population among the nations with all the income, savings, and access to credit ceases growing in 2017.  In short, the global pie begins shrinking.  As the chart below highlights, the combined 35 OECD nations plus China, Brazil, and Russia adult populations cease growing in 2017.  What was a flood of new 15-64yr/old population growth translating into a flood of new workers & new consumers (as many as 29 million more adults in 1981 and 26 million as recently as 2003) now done growing.  These nations which consume 70% of global oil and even higher % of global imports begin the natural contractionary process.  This population, after flatlining for the next 5 years (or so), will decline for the remainder of our lives (and demand with it...detailed HERE).

This is not news to the Fed.  Consider the Federal Reserves FFR % peaked coincident with the peak growth in this population.  The 35 years of decelerating population growth and 35 years of interest rate cuts were no coincidence.  The lower rates were intended to incent the decelerating growth among the population to incur greater indebtedness, artificially maintaining GDP growth rates.

However, Trump's populism is about reclaiming some portion of US business lost in globalization.  Trump believes the US has harmed itself with poorly written and poorly conceived trade agreements.  Probably true.  He basically means to reinvigorate domestic US business but America's gain will feel like the export rug being pulled from these exporter nations.  Our "enemies" already suffering collapsing internal demand will simultaneously suffer export decelerations or declines.  I don't wonder how they will react if/when the US pulls out the only leg left on their stool.  Ramping US shale oil production (& price declines with that) are killing Iran and Russia...and perhaps very soon renegotiated trade deals will knock out some of the business and profits that are keeping China (and others) alive.

So, it isn't strange the tensions among these nations with the West (particularly the US).  These three particular nations populations are collapsing from the young up, there domestic markets buoyed by debt unlike the world has seen, and now their exports are under attack.  There will inevitably be winners and losers...and losers often resort to picking up guns with bad intentions when options run short.

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