Friday, July 26, 2019

Soaring Debt Vs. Shrinking Populations Of Young To Repay Or Service That Debt

Global debt is currently at $246.5 trillion and primarily in the Wealthier, Consumer Nations of the world.
The population of young in Consumer Nations has fallen 12% or over 100 million Since Peaking in 1975.
Debt on a per capita basis gauged against the consumer nations young is going parabolic.
For nearly a half century wealthy nations young populations have been declining versus rising young among poor nations...offset by secularly declining interest rates and the addition of over $240 trillion in global debt to maintain unnaturally high rates of economic growth.  The consumer nations population of relatively wealthy young has been declining for nearly 4 and a half decades, falling over 100 million or 12% during that span.  The population of relatively poorer nations young has increased by nearly 190% or increased by 570 million.  On average, each wealthier nations young person represents $26.5k in per capita consumption versus each poor nations young represents $1.5k in per capita consumption.  Said otherwise, it takes 15 more poor nations inhabitants to replace the loss of every one wealthier nations inhabitant to simply maintain flat consumption, thus the impetus for interest rate cuts and massive increases in debt among the wealthy.  Obviously, consumption hasn't been flat but has grown tremendously, primarily thanks to interest rate cuts, cheap debt, and only in a very small part from growth in consumption among the poorer nations population gains.

As I started in my last article, the world is characterized by stark inequalities among the global nations of "haves" and "have-nots". The World Bank is kind enough to categorize the world's nations into four buckets by the Atlas Gross National Income per capita (geographically detailed HERE and listed HERE). High income nations range from $84k to $12k per capita, Upper Middle income nations $12k-$4k per capita, Lower Middle income nations $4k to $1k, and Low income nations less than $1k per capita. To simplify what is taking place, I sweep the high and upper middle income nations 0-15yr/old populations together (blue line below), as these nations represent 90% of the global income, savings, and access to credit. They consume 90% of the global energy and purchase 90% of the global exports. They drive global economic activity. Likewise, I sweep the have-nots 0-15yr/old populations together (tan line, below).  To view the full picture, I include global debt (red line) and the Federal Funds rate (black dashed line).
Looking at the same chart but running through 2050, with UN population projections and debt estimated to continue growing at the same pace it has since 1950 (these #'s are inclusive of the impact of immigration and emigration).  Continued declines among the wealthy young consumers, growth among poor young non-consumers, and debt running from the current $250 trillion up to $2.6 quadrillion.  NIRP (negative interest rate policy) will be necessary to enable this sort of wildly irresponsible debt load.
And looking at the debt on a per capita basis of young in the consumer nations, the chart below shows the impressive rise of debt against a long decline in consumer nations young.  As of 2019, the per capita debt is over $334k per youngster.  But that is nothing compared to what is coming...
The chart below takes the UN population projection and estimated global debt through 2050, and drum roll please, by 2050 every consumer nation under 15 year old will be responsible for over $4 million in per capita debt.  That is the magic of surging debt and declining population...and that is entirely unworkable.  There is no possible way to repay or even service this sort of debt load in any free-market based fashion.
And just to round things out, the chart below shows annual changes in the populations of wealthier versus poorer nations under 15 year olds.  Also included is the rising debt, for some perspective on the role of debt in maintaining the growth of consumption.
Ok, to really round out the picture, here is the flip side of the equation...the 65+ year old populations of the same groupings of nations.
And annual changes in the populations...note the sharp acceleration in annual growth of consumer nations elderly since 2007 and the massive increases still to come.  This isn't even mentioning the unfunded pensions and liabilities due to these elderly.
And putting the changing population growth in perspective, the same groupings below but showing only the 0-65 year old annual changes among the wealthier and poorer nations alongside the Federal Funds rate (yellow line).  Note the deceleration of wealthier under 65 year old population growth from 2007 to now, and by 2023 turning to secular outright depopulation of consumer nations under 65 year olds throughout the remainder of the century.
Again, the growth in potential consumption among the far poorer populations in no way offsets the declining potential of consumption among the declining wealthier populations...without ZIRP (or more likely NIRP) and debt of gargantuan proportions.


  1. Great analysis, thank you. The one question I have is who funds that increase in debt. Said another way who would want to purchase that security (asset) and hold it? If there isn't a buyer I imagine it gets ugly.

    1. That is the magic of a currency that can be created with the tap of a keyboard button. As long as there are national currencies, there will be a buyer. QE is just the start of a secular trend that removes excess assets from the market to maintain centrally determined asset prices. This will almost surely metastasize to corporate bonds, stocks, and definitely into real estate. The Fed and federal government will digitally create currency with which to purchase assets (assets unlikely to be returned to the market) to avoid the obvious outcome if free-market pricing were allowed with declining quantity / quality of buyers and surging quantity of sellers (their retirements dependent on the cash flow and sales price of those assets).

    2. CH your research is always enlightening and a must read for anyone wishing to understand and/or advise.

      I would like to jump into this thread.

      The funds are mostly coming out of pension and insurance funds. Particularly in Europe, pension fund managers are not free to invest in what they think is best. By law, pension funds must invest the bulk of their assets in "risk free" government paper.

      Moreover, in the past 15 years, particularly in Europe but similarly in the US and Japan, national central banks have been purchasing government paper which in turn they sell to the European Central Bank. In Japan in particular, the central bank now owns pretty much the entirety of the government paper market along with some incredible percentage of the stock market.

      In laymen's terms, you would call this a "circle jerk".

      The trends highlighted in CH's research are not new of course. We have seen this before. The Roman empire eventually was faced by similar problems of increasing debt and population decline.

      These trends never last forever of course. Historically speaking, these trends are reset by war, famine and even pestilence. That is not in doubt. The only variable is time.

      What is interesting this time around however, is that presumably literate and technologically advanced societies as we presume we are, should have allowed a clique of bankers to institute a centralized monetary system that cannot contemplate the distribution of wealth.

      The accumulation of debt is an arithmetical reality that is enshrined in the architecture of a centralized monetary system. This drives the concentration of profit in the hands of the purveyors of the debt of course. As the purveyor of debt lowers the rate of interest artificially to ostensibly promote economic activity, saving becomes less profitable till it becomes a losing game. At that stage, financing becomes necessary for investment. I.E. the notion of debt is equated with the notion of investment.

      At that stage, the game is up and you gradually but rather quickly arrive where we are today.

      The concentration of wealth, is an arithmetical ramification of a centralized monetary system.

      A centralized monetary system can only result in gradually increasing fiscal pressure that is brought to bear by legislation that becomes progressively ever more complex.

      This is the single greatest driver of declining populations and the concentration of wealth.


    3. Yup - really spot on. My question is about the social compact of between the classes...that a system exists to ensure the poor and middle get enough not to take down the rich...and the rich are incented adequately for their efforts and risk. My guess is that this compact will sooner than later be tested again and at that point we'll have to determine if we go communist, socialist, free-market capitalism (not this present centrally controlled variant) or what. Typically, either a reset or redistribution occurs or an authoritarianism...something like that!?! The fertility rate seems like it is just a thermometer for how sick the patient is feeling.

    4. Also same situation in Japan with pension funds obligated by law to buy JGB's. In US, primary dealers are obligated to buy T's...and somehow they always find "someone" to flip them to. There are different schemes from TLTRO in EU to "other" buyers in the US to the BoJ and Mrs. Watanabe in Japan. I don't expect this will ever be the point of failure.

    5. The social compact is being tested as we discuss this. Brexit, Trump, Duterte, Kurz, the AfD in Germany, the Yellow Vests. These are all manifestations of the social compact being tested. It is being tested because it has broken.

      The point of failure will be the rise in the cost of servicing debt. Hence the feverish peddling to keep interest rates low/negative.

      As the US$ keeps rising however, progressively more severe pain thresholds are achieved. As this happens, more programs must be curtailed or abandoned for lack of funds. As this dynamic progresses, politics becomes gradually more strident but necessarily more incestuous and corrupt as politicians close ranks to maintain office by any expedient available to them.

      This is what ultimately drives countries to war.

      An interesting corollary to this discussion is that whereas Western industrialized nations are indebted anywhere between 100% to 270% to GDP, Russia is plodding along at 15% Debt to GDP ratio.

  2. Thank you for adding your old work to the blog, Chris. It was very much missed. Great analysis as always. Thank you again.


    1. I shut my blog down as it isn't exactly conventional thinking and not terribly helpful when job hunting...but, luckily I'm more or less un-employable. Cheers

  3. No thanks to Edward Bernays eh? LOL

  4. That's what Boom-to-Bust, privately owned, fractional Reserve, debt-based banking will do for you ...

    1. As debt always accumulates, can never be paid off, family size shrinks, making future generation smaller, unable to pay for the ever growing burden of the older generations. Not like it was before the Federal Reserve came into being, back when families could afford to take care of their elderly.

    2. As debt always accumulates, can never be paid off, at the country lever, ever more draconian steps must be made to continue to service the ever accumulating debt: cutting retirement benefits, abortion as a health-care benefit, ever more aggressive foreign policy, wars against the world. Pillaging other nation's resources as the means to service the debt.

    3. As debt always accumulates, can never be paid off, inflation, hyper-inflation becomes axiomatic, destroying a nation's currency, standard of living, leading to a general societal collapse. Zombie Apocalypse.

    4. As the only tool Fractional Reserve banking has is the money-supply, used in serial pump-and-dump ponzi, boom-to-bust schemes; the public (slaves) experience perpetually shrinking ownership of real property. The banks, the smart money: pump > buy the financials; dump > sell the financials, market sell-off in liquidity crunch > buy hard commodities) eventually leading all real property being owned by the banks.

    I believe this last point in the ever-repeating nation-state, reserve currency scheme; where the banks own all the property, the debt slaves nothing, is called communism.

    1. Ouch...when you put it that way, it doesn't sound good!?!

  5. The core problem is unlimited government spending. The debt will NEVER be repaid. So does it make any difference the population of young people?

    Interest rates are being kept around ZERO percent to allow this unlimited debt accumulation. Isn't it simply the oligarchs colluding with the politicians to allow this insanity?

    There is no way out at this point except a reset/devaluation/cyprusbuyin whatever they will try to call it. The people left holding the bag will be anybody with cash.

    1. Hey Neal,
      My point is that decades of interest rate cuts have been used to incent greater debt and leverage. This has been substituted for a declining potential for consumer growth. Agreed the debt is unrepayable... question is only how it will be serviced?


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