Following the GFC, I had questions about our financial and economic system and found no adequate answers. In my quest to understand, I have answered many of my questions and in good part satisfied my curiosity. But it is time to quit spitting into the wind and the get back to work. If you know of an organization that could use someone like me, please let me know.
Monday, May 22, 2017
American Exceptionalism - Decelerating Population Growth, Accelerating Money Growth
Since 1971, and the disconnection of the dollar from a finite gold backing, the value of money (the dollar) has been determined by it's purchasing power versus the inflation of the assets to be purchased. Thus printing more money has not necessarily created "wealth" if the assets to be purchased are rising as fast or faster than the purchasing power of the "money". Of course, the Fed touts it's dual mandate of full employment and stable prices...but the result in prices; not so stable.
The primary global asset purchasable only in US dollars, crude oil, has told a story of wildly gyrating prices. Since the end of Bretton Woods, the implementation of the "petrodollar", and the subsequent Congressionally dual mandated roles bestowed on the Fed...crude oil prices have gone bezerk, twice climbing nearly 10 fold within a decade (chart below). This is the opposite of the previous 30 year period of relative price stability from WWII's end until the Fed took over. However, the same could be showed using so many mediums; US housing (& rents), US healthcare, US higher education, commodities, and of course US stock markets all became unhitched from gravity once the Fed fully embraced its mandates.
WHAT IS THE FUNCTION OF MONEY & WHAT GUIDES ITS CREATION?
Theoretically the growth of "money" should be linked to the growth of the population, to ensure an adequate and stable money supply exists for the growing population. This money supply is meant to be portable, divisible, uniform, acceptable; but also key is that it be limited in supply and durable. In a moment I'll show you anything but a stable, limited supply, of durable "money". But first, the chart below shows the total 25-54yr/old US population, those employed among them, and the value of all publicly traded US stocks (represented by the Wilshire 5000). Something far beyond population growth or employment growth is pushing up the value of dollar based assets, gauging by US stock markets accelerating appreciation.
With that in mind, the chart below shows the growth of M3 money (the broadest measure of US "money") and the broader 15-64yr/old US population since 1971. The money supply has grown in excess of 20x's (2,000%) vs. the working age population (15-64yr/olds) which has grown less than 1x (nearly 70% increase).
This results in a rising quantity of "money" on a per capita of the core population basis, as the chart below details. The total amount of "money" rose from approximately $5 thousand dollars per working age adult to todays $65 thousand per adult...an increase of 13x's (1,300%).
The annual growth of the 15-64yr/old core US population peaked in 2003 and annual core population growth has decelerated by 90% since...while annual M3 growth has doubled over the same time period. The chart below shows the annual changes from 1980 into 2017. The result has been a policy to divorce money creation from population growth in order to substitute a flood of liquidity for waning demand, forcing prices perpetually higher despite decelerating growth in demand.
The chart below shows the decelerating change in core population and accelerating M3 money supply from '00 into '17, showing the year over year change on a monthly basis (now updated through April data). The current fall in core population growth will continue downward, likely turning negative at times over the next year (yet another first for America). This is a combination of the legacy of negative birth rates feeding through now combined with decelerating immigration (primarily the illegal variety).
Finally, the growth in M3 money supply per the growth in the adult, working age population (chart below). I'm not an economist or expert on much of anything...but that doesn't look particularly good to me (something to do with "hyper-monetization" or some such thing).
THE GLOBAL PERSPECTIVE:
Some may try to explain that dollar creation, as the global reserve currency, is actually tracking the growing global population. The chart below puts this theory to rest. It is the annual total population growth of all 35 OECD nations, plus China, Russia, Brazil (purple dashed line) broken down by growth among the 0-64yr/old population (yellow columns) and 65+ population (blue columns). Global debt (red line), global GDP (green line), and the Federal Funds rate (black line) are included for reference. Noteworthy is the onset of depopulation among these nations under 65yr/old populations in 2018 and all future (yet waning) population growth among these nations solely in the 65+yr/old populations.
The chart should make it plain the populations that matter economically and consume over 70% of the worlds oil (and an even higher % of all global exports) with nearly all the earnings, savings, and access to credit are in decline even faster than America.
All I can say is the appearance of hockey sticks typically aren't a good or stable sign but their appearance, just like those of black swans, has become the "new normal".