Sunday, January 28, 2018

Two Lines Explain Why The Current Economic, Financial, (& Perhaps Social Systems) Are Breaking

Growth isn't about how many, but about how many more.  So, no argument that the world population of 7.4 billion is huge...but if we check under the hood we will find the much vaunted growth is not what we are being sold. 

If we just isolate the annual change in the 0 to 55 year global population (minus Africa...explained HERE), we see annual population growth has decelerated by 77% or we are adding 49 million fewer 0 to 55yr/olds annually than we did during peak growth in 1988.  Within a decade, the world under 55yr/old population (excluding Africa) will cease growing and begin an unknown period of depopulation.  In fact, the forward estimates are based on the UN's more "optimistic" medium variant...the reality will almost certainly be lower.  Meanwhile, annual global GDP growth in dollar terms has been wildly gyrating from record growth to unprecedented record declines (chart below).
The same data below but in this time in percentage terms.  Annual percentage growth of the 0-55yr/old global population (excluding Africa) has decelerated from +2% annually to just +0.26% in 2018.  Likewise, the annual change in global GDP in % terms is trending lower highs and lower lows.
Due to decelerating organic growth among populations of potential consumers, the synthetic version of growth has been substituted.  Interest rate cuts and debt to fuel new capacity for a decelerating (and soon to be declining population) and debt to fuel consumer consumption.  The result, as the chart below shows, is disproportionate growth of debt versus actual economic growth.
And a best guess where this is going...Declining population of potential child bearing population, declining potential # of new home buyers, car buyers, tax payers, employees...and debt blowing through the roof and deeply negative interest rate policy in effect.

The Fed and like central banks of the world want economies to grow at rates far beyond what organic growth supports.  The further the central banks intervene to force populations whose growth is decelerating (and resultant potential economic growth) to overshoot, the longer the duration and severity of the resultant ultimate rebalancing.  One of the great many flaws of modern day, central bank driven economics is the idea that economic growth is all about increasing capacity or production.  Simply put, it doesn't matter how many widgets or how efficiently you can make them if there is a decelerating growth and soon an outright declining quantity of potential buyers on the other end.