Saturday, October 26, 2019

Putting Federal Debt In Perspective Against those Responsible In The Future

Since 2007, US federal debt has risen 150% while annual US births (legal and otherwise) have fallen almost 14%.  Said otherwise, over the dozen years since 2007, federal debt has increased by $13.8 trillion while 5.2 million fewer births have occurred over the same period than the Census projected.  This is probably worth a little closer look.  Starting with...

US federal debt, split between publicly held debt and IG (Intra-Governmental holdings; aka Social Security trust fund, etc.).  Clearly, publicly held debt is skyrocketing since 2007 while IG growth is decelerating and will turn to net declines (as SS turns to a net seller) within the decade.  Relatively soon, all debt issued will be marketable and significantly more debt will be needed in order to pay for both the spiraling deficit alongside the declining IG holdings.


Next, looking at the annual issuance of federal debt, breaking out the annual issuance of publicly held marketable debt (red columns) versus IG (blue columns).  ***Noteworthy, since August 1st of 2019, the Treasury has issued $920 billion in net new debt through October 23rd.  The chart below is based on the assumption the Treasury will issue another $160 billion through the last two months plus the remainder of October (with a net issuance of $1.1 trillion for calendar year 2019).


Since debt is an obligation to be repaid or serviced in the future, I'll put this in context with federal debt continuously divided by the future, the quantity of annual births.  Below, annual births from 1950 through 2019 (blue columns) versus federal debt through 2019 (red line).  ***Yes, I'm making a great leap to note that births will continue to fall in 2019...as they have been falling at an accelerating rate through Q1 of 2019, as noted by the CDC (HERE).


Dividing federal debt by total annual births, from 1946 through 1975 (below).  As of 1946, coming out of a world war with debt at record levels, every child born had the future liability of $100,000 in federal debt.  By 1957, births had risen and federal debt had declined, meaning this responsibility per child born had declined by almost 40% to just $63,000.  Federal debt per child born wouldn't be back to the 1946 highwater mark until 1970.  But there would be no looking back after the abandonment of Bretton Woods and the foundation of the gold back dollar in 1971.


The then present generation (baby boomers) made a deal with the past generation to sell out the future generation (Millennials).  This can be seen in the chart below, showing the debt each child is born shackled with.  From $100 thousand in 1970, to $300 thousand in 1980, to $800 thousand in 1990, $2.1 million in 2007...and as of 2019, every child born a citizen of the US (regardless their parents status) is liable for a ludicrous $6.2 million in federal debt.  And this is just a fraction of the actual liability that is owed, if even faster rising unfunded liabilities were included.


To repeat, since 2007, total births have declined almost 14% versus a 150% increase in federal debt.  But we continue piling exponential debt on a declining future population and deride those who question the morality of such an obligation?  And the growth of the US child bearing population is rapidly decelerating while tumbling fertility rates are overwhelming the larger child bearing population (detailed HERE).  Translation, federal debt will continue skyrocketing while present and future births are likely to continue tumbling.

Of course, there is no way the US could ever repay this mounting debt even with a rising population of young...let alone a declining population of young.  But it is the "servicing" of the mounting debt that is destroying the Millennials and future generations.  The ZIRP, QE, etc. are effectively pushing asset prices through the roof with the follow through of record rents, day care, insurance, student debt, etc. etc. rising far faster than young adults income.

These policies of Federal Reserve driven asset appreciation primarily benefit asset holders, corporations, and those deeply indebted (federal government).  As detailed (HERE), the 70+ year-old population will represent an unprecedented 75% of the US population growth over the next two decades.  These policies meant to "kick the can down the generational road" continue to suffocate the asset poor young adults and restrict the creation of newborn.  The outcome of ever accelerating debt via perpetually lower rates (to zero and below)…is the resultant collapsing birth rates and the more the Fed and central banks will suggest even more of what is making the patient sick in the first place.

Wednesday, October 23, 2019

The Demographic Depression Will Overwhelm Central Bankers Over The Upcoming Decade

The decelerating growth and/or outright decline of the working age population is clearly visible in every part of the world. This article details where the deceleration began and the extent of the decelerations / declines. The reason this is so important is that the majority of economic growth is driven by the rising demand represented by the growth of the working age population (and their increasing quantity of employed persons). But not just the rise of any population, but those of means, those with savings, and those with access to credit.  This growth drives mega infrastructure projects, buildouts of supply chains, increased production, and ultimate rise in consumer demand. Absent that population growth (particularly among those with means) governments have been "building bridges to nowhere", "building ghost cities", providing "lower for longer", ZIRP, NIRP, and monetizing debt, etc. etc.  This is all ultimately a fools errand only worsening the ultimate reorganization.

Why?  The working age populations earn and spend about double of those on fixed incomes among the elderly populations.  The working age populations are at full employment and little to no further growth in employment is possible (detailed, HERE).  Elderly utilize little to no credit and focus on paying off their debts...thus despite low rates, money velocity will keep on tanking.  The declining interest rates, rising debt, and ever greater centrally controlled markets are the flip-side of the charts I show below.  The below charts all show the ten year change of the 20 to 65 year old population (and percentage change in that working age population divided by total working age population) versus the same for the 65+ year old populations.  Deceleration and outright decline are the universal among all the charts.

INDIVIDUAL NATIONS

JAPAN
  • 127 million or 1.6% global population
  • 3.4% global energy consumption
  • 2020-2030...Working age population decline of 6.5% (-4.5 million)
Patient zero in the epidemic of population collapse, Japan's negative fertility rates coupled with little to no immigration has Japan leading the race to the bottom. Only Japan's exports were able to offset the collapsing domestic demand.  Below, working age Japanese population versus the growth of the elderly population. Japan is entering it's third decade of working age population decline, declining slightly slower than the previous decade before the bottom really falls out from 2030 through 2050.

Percentage change, per 10 years, of working age population versus elderly population. Over the next decade, Japan's working age population will decline by 7% while its 65+ elderly population will increase by just 4%. Within 20 years, Japan's elderly population will cease growing and Japan's population will be in decline at all levels. But tellingly, Tokyo's population (representing about 30% of Japan's total population) is still rising meaning the working age population decline across the remainder of Japan's rural locations is of epic proportions. This collapse of working age across rural locations, as young head to urban centers in search of opportunity, is being mirrored across the rest of the world and is the final act of the economic decline worldwide.

GERMANY
  • 84 million or 1.1% global population
  • 2.1% global energy consumption
  • 2020-2030...Working age population decline of 8% (-4.2 million)
Just behind Japan in long term negative fertility but far more open to immigration, the working age German population versus the growth of the elderly population. Germany's creation of the Euro area was its means to avoid collapsing domestic demand for its exports by quintupling the market for its exports absent a strong Deutschmark. Of course, Germany's economic salvation has meant abject economic destruction for most of the Euro nations.

Percentage change, per 10 years, of working age versus elderly.

SOUTH KOREA
  • 51 million or 0.7% global population
  • 2.2% global energy consumption
  • 2020-2030...Working age population decline of -10% (-3 million)
The new poster child for population collapse is South Korea. Just like Japan and Germany, an incredibly urbanized and industrialized export powerhouse. Working age South Korea population change, per decade, versus the growth of the elderly population (below).

Korea's reliance on global exports is likely unmatched as their domestic population is now and will continue to collapse indefinitely. Below, the percentage change, per 10 years, of working age versus elderly is truly astounding.

CHINA
  • 1.43 billion or18.6% of global population
  • 24.3% global energy consumption
  • 2020-2030...Working age population decline of -8% (-69 million)
China is the elephant in the room with a collapsing working age population versus the gargantuan growth of its elderly population (below).  This chart is 20 to 60 year-olds and elderly 60+ year-olds, as China has compulsory retirement at age 60 for males, 55 for females.

Percentage change, per 10 years, of working age versus elderly.

THAILAND
  • 70 million or 1% of global population
  • 1% of global energy consumption
  • 2020-2030...Working age population decline of -5% (-2.1 million)
Working age Thai population change, per ten years, versus the growth of the elderly population (below).

Percentage change, per 10 years, of working age versus elderly (below).

MEXICO
  • 128 million or 1.7% of global population
  • 1.4% global energy demand
  • 2020-2030...Working age population of +12% (+9 million) but down from decade long peak of +38% (+13 million).  Growth remains through 2050 but only continuing to decelerate.
Working age Mexican population change per decade versus the growth of the elderly population (below).

Percentage change, per 10 years, of working age versus elderly.

IRAN
  • 83 million 1.1% global population
  • 1.7% energy consumption
  • 2020-2030...Working age population growth of +7% (+4 million)...working age growth is decelerating and will turn to depopulation prior to 2040.
Working age Iranian population change, per ten years, versus the growth of the elderly population (below).

Percentage change, per 10 years, of working age versus elderly (below).

BRAZIL
  • 211 million or 2.7% global population
  • 2.2% global energy consumption
  • 2020-2030...Working age population increase of +5% (+6 million) and this is essentially the last decade of working age growth in Brazil.
Working age Brazilian population change, per ten years, versus the growth of the elderly population (below).

Percentage change, per 10 years, of working age versus elderly (below).

INDIA
  • 1.37 billion or 17.7% global population
  • 5% global energy consumption
  • 2020-2030...Working age population growth of +14% (+110 million), decelerating from +30% and +137 million in earlier decades.  Working age growth continues decelerating through 2050.
Working age Indian population change, per ten years, versus the growth of the elderly population (below).

Percentage change, per 10 years, of working age versus elderly (below).


REGIONS

East Asia (China, S/N Korea, Japan, Taiwan, Mongolia)
  • 1.67 billion or 22% of global population
  • 31% of total global energy consumption
  • 2020-2030...Working age depopulation of -8% (-80 million)
Working age (20 to 60 year-olds) East Asia population change, per ten years, versus the growth of the elderly population (60+ year-olds, below).

Percentage change, per 10 years, working age versus elderly (below).

WESTERN EUROPE
  • 455 million or 5.9% of global population
  • 12.5% total global energy consumption
  • 2020-2030...Working Age depopulation of -5% (-13 million)
Working age Western European population change, per ten years, versus the growth of the elderly population (below).

Percentage change, per 10 years, of working age versus elderly (below).

EASTERN EUROPE
  • 295 million or 3.8% of global population
  • 7.5% total global energy consumption
  • 2020-2030...Working age depopulation of -9% (-16 million)
Working age Eastern European population change, per ten years, versus the growth of the elderly population (below).

Percentage change, per 10 years, of working age versus elderly (below).

NORTH AMERICA+ (US of A / Canada + Australia / New Zealand)
  • 397 million or 5.1% of global population
  • 21% total global energy consumption
  • 2020-2030...Working age population growth of +1.9% (+4 million) down from decade long peak of +19% (+24 million)
US working age population growth over the coming decade is only 1.6% but the relatively higher #'s for Canada, Australia, and New Zealand push up the average (below).

Percentage change, per 10 years, of working age versus elderly (below).

SOUTH AMERICA
  • 427 million or 5.5% of global population
  • 3.3% global energy consumption
  • 2020-2030...Working age population of +7% (+19 million) down from decade long peak of +32% (+40 million)
Working age South American population change, per ten years, versus the growth of the elderly population (below).

Percentage change, per 10 years, of working age versus elderly (below).

Rest of World (the nations w/ incomes less than $4,000 per capita annually, and average $1,600 in per capita income)
  • 3.85 billion or 50% of global population
  • 20% of global energy consumption
  • 2020-2030...Working age population increase of +19% (+402 million) down from peak of +30% but at all-time high in total persons.
Working age population growth of Africa, Central America, Asia (excluding East Asia), etc. versus the growth of the same elderly populations (below).  The impressive looking population growth here simply does not transfer to any significant rising demand and consumption as these nations are too poor and too dependent on import growth among wealthier nations.  Sadly, these poor nations will only get poorer, following the current economic system.

Percentage change, per 10 years, of working age versus elderly (below).

Final Thoughts:
Over the coming decade, the current growth based system and paradigms will fall by the wayside.  The global trickle-down mantra is already failing, and will entirely come apart.  The impact will be bad for wealthy nations but even worse for poor nations.  The real question is what will replace the current faulty system...and will it be any better?  Invest accordingly.

-Population data from UN World Population Prospects 2019, (utilizing the overly optimistic Medium Variant).

Wednesday, October 16, 2019

America 2020 Through 2040...The Era Of The 80+ Year-Old

Summary
From 2020 through 2040, the 20+ year-old US population is estimated to grow by 15 million fewer than during the past 20 years.
Of that growth, 48% will be among 80+ year olds, 28% among 70 to 80 year olds, and just 28% among those aged 20-70 years old.
The implication for future employment is a drastic 70% deceleration of potential employment growth over the next two decades.
In a nation with twin trade deficits and budget deficits, the simplest of means to gauge potential growth, is to gauge the growth of the consuming population.  The chart below details the changing demographic picture in the United States.  According to UN and Census estimates, from 2020 to 2040, there will be little to no growth among the population of young (0-20yr/olds, green line) as I recently detailed How Low Will US Births Go?, likewise for the child-bearing population (20-40yr/olds, blue line).  Meanwhile the post childbearing but still working 40-70yr/olds (grey line) will rise but the largest population increases will be among the 70-80yr/olds (yellow line), and particularly among the 80+yr/olds (red line).  So what?
Breaking the above growth into twenty year periods by age segments and folding the 20 to 70 year-olds into one grouping, below, you can see how the next twenty years are nothing like the US has ever seen before.  The 70+ year old population will rise by 24 million versus just an increase of 9 million among the 20 to 70 year-old working age population.  However, even among the elderly, the bulk of the growth will be among the ultra-elderly 80+ year olds, representing nearly 50% of all total population growth over the next two decades.
Why do I mention this?  I just happen to catch this CLOWN on CNBC yesterday talking absolute nonsense.  The headline read, "Millennials are about to trigger a major ‘changeover point’ for the US economy, asset manager says".  Mr. Smead suggested if you "just do the math"...millennials are about to rock the US economy and...“In 20 years, there is going to be way more payers into the social security system and there is going to be way fewer taker-outers — and that problem will solve itself through demographics.”  Apparently, Mr. Smead had not done the math.  However, CNBC appeared to have no problem allowing his ignorant statements and hawking his services based on entirely erroneous statements.  Hmmm.
Why This Matters
Every age group has a general labor force participation rate (detailed by the BLS HERE), forming a bell curve, from low participation among 15 to 24 year-olds, peak participation among 35 to 44 year-olds, and collapsing among 65+ year-olds.  So, when there is minimal population growth among the working age populations, and those age groups that do all the work, are at historical peaks of employment to population size (chart below is employed per age group divided by population per age group)...and the bulk of population growth will be among those that typically don't work...well, we have a problem.
But participation rates among the elderly have been rising over the last decade (65 to 74yr/olds rising from 18% to 27% and estimated to rise to 32% by 2028, 75+yr/olds rising from 5% to 9% and estimated to rise to 12% by 2028).  So, if we want to gauge potential employment growth ("just do the math"), it is a simple exercise.  Multiply estimated population growth (not so hard, since in this case they are already alive and just shifting existing populations forward) by age groups and their participation rates...and the simple answer is that over the next twenty years, the maximum number of potential new employees the US can support is about 1/3rd any period since WWII.
This means, at best, over the next two decades the US will have just 1/3rd the potential growth of new home buyers, car buyers, tax payers, etc. etc. than anytime since WWII.  Myself nor this simple truth (as I have nothing to sell or buy, no "recommendations") are likely to make it on CNBC or any other "info-mercial" outlet.  This decelerating growth is why rates will continue declining (because they must), debt plus QE (and other forms of monetization to artificially boost asset prices) only become ever greater.  This ever growing substitution of centrally directed artificial growth for ever decelerating organic growth is "just the math" (as is the growing majority increasingly injured by the outcome and the shrinking minority enriched by the same).

Population data via US Census Population Projections and UN World Population Prospects 2019, Employment data via BLS.

Wednesday, October 9, 2019

How Low Will US Births Go?!?

Summary
Births in America continue to tumble despite a growing child bearing population.
The growth among the child bearing population is decelerating and this population will begin outright declines around 2029.
US births are likely to continue falling, faster and far deeper, while current Census estimates continue to anticipate growth (continually just around the corner).
The chart below is the 20 to 40 year old US population (blue line) and the columns are the annual change in that population (maroon columns).  The 1960 to 1990 population surge in the wake of the baby boom is easy to see as is the echo-boom from early 2005 through the 2020's.
From a births perspective, it doesn't matter what the total US population is...the only population that matters are those capable of child birth.  I show the 20 to 40 year US population as they are responsible for over 90% of the births while those under 20 and those over 40 are producing so few children relative to 20 to 40 year olds as to be statistical noise (births per thousand by age group is detailed by the CDC HERE...on CDC page, just click on age specific birthrates and hit generate chart to view age specific birthrates).
From 1957 through 2007, the child bearing population increased by 72% while births increased only 0.2% (just two tenths of 1%).  Obviously, it was the rise in the child bearing population offsetting the collapse in the fertility rate that maintained the flat birth rate.
  • 1957 through 2007
    • Child bearing population rose by 34.8 million (72% increase)
    • Annual births rose by 10 thousand (0.2% increase)
2007 through 2019 was the period that births were anticipated to spike with the rising echo-boom child bear population busily reproducing.  An echo baby-boom was anticipated.  Instead, a prolonged and deepening baby-bust has taken place.  According to the CDC, in the 1st quarter of 2019 births continued to plummet across the board, but I'm assuming 2019 births will come in slightly less negative through the remainder of 2019 (I'm likely overestimating 2019 actual births at 3.73 million).
  • 2007 through 2019
    • Child bearing population rose by +9.3 million (11.5% increase)
    • Annual births fell by <590> thousand (13.7% decrease)
The implications for what comes next should be obvious.
  • 2019 through 2029
    • Child bearing population estimated to rise "just" 3.2 million or a little over 3%
    • Births are likely to continue falling as deeply negative fertility rates overcome what little child bearing population growth remains
  • 2029 through 2040
    • Child bearing population estimated to fall 1.9 million
    • Births likely to fall even faster with a combined declining child bearing population and continued deeply negative fertility rates
Census birth estimates from 2000 (plus the nearly identical '08 estimate) and 2017 are displayed below.  Clearly, since 2008, the Census is having a hard time adequately curbing their enthusiastic projections.  Although each projection is lower than the last, each projection continues significantly overestimating births.  With decelerating growth among the child bearing population through the 2020's and outright child bearing population declines in the 2030's...there is no reason for birth projections to be rising but the Census is having a very hard time catching down to reality.  In truth, there is good reason to begin projecting ongoing and deepening birth declines in the 2020 Census estimate (my estimate at a realistic 2020 Census estimate is included below, blue dashed line).
From 2009 through 2019, actual births versus estimated births were 5.3 million fewer than anticipated (and this includes all births, whether the mother was here legally or otherwise).  This is a crack in present and future growth nearly five times larger than all Americans lost in all wars the US has ever fought!  That's 5.3 million Americans not in existence and not consuming the average $25,000 per/capita annually throughout their lifetimes.   But what is now a crack turns into a chasm, taking the same '08 birth estimate versus a more realistic birth estimate through 2040, this represents almost 34 million fewer births (-22%) than was estimated in 2000 and 2008.  The Census will be forced to continue collapsing their total US population projections, as they have been doing since 2008 (detailed HERE).  The implications for declining potential economic growth based on collapsing quantity of potential consumers (while productivity, innovation, and advancements continue increasing capacity...for a declining basis of consumption) should have the CBO and the like heads spinning.
A continuation of the current falling fertility and birth rates is a really, really good bet (chart below).
The age segment that will continue to grow rapidly, the post childbearing 45+ year old population (red line, below).  Notice even showing the broadest child bearing population (15 to 45 year-olds, yellow line), the stall in growth since 1990 relative to the growth of elderly.  Among the 45+ year-olds, the majority of population growth over the coming decade will be among 75+ year-olds, a segment with less than 10% labor force participation, consumes at very low relative levels, and utilizes little to no credit (nor should they, primarily living on fixed incomes).
The debt based US economic system premised on perpetual consumptive growth (as a dual net importer and net debtor) is now facing long term depopulation from the bottom-up while the numbers of elderly surge.  But only those who suggest this is likely to lead to some sort of "hiccup" are the crazy ones?!?
Population data via US Census Population Projections and UN World Population Prospects 2019