Friday, February 19, 2021

Just Charts of Demographics...with Multiple Variables (or hot topics for your next cocktail party)

Some folks want to make economics seem complicated. It ain't. Any who, some charts depicting the US economy...through demographics.

First, 15 to 54 year old US population (blue line) and those employed among that population (green line). You may note the end of population growth among them in '07 and not only the end but a significant decline in employment among them since '07. This is the population segment that undertakes most of the credit (creating the new $'s via undertaking debt...vs. elderly who destroy $'s via deleveraging/paying off their loans), buys most the homes, spends the most, earns the most. The lack of growth among them is paramount in understanding what took place in '08 as potential new home buyers ceased to exist and banks gave credit to anyone to keep the party going...'08 (and what has come since) was an entirely predictable demographic caused crisis.

Same as above but plus Federal Reserve set Federal Funds Rate % (black dashed line) and it's relationship to marketable federal debt (red shaded area). When working age population growth ceased, the Federal Reserve implemented ZIRP (free money to the largest banks) and likewise free money to Congress. The explosion in debt since is entirely due to the Federal Reserve's encouragement via their interest rate policy.
Same as above but inclusive of Federal Reserve balance sheet (aka, QE...yellow line) and Wilshire 5000 (representing all publicly traded US equities...light blue line). Since the end of working age population and employment growth, virtually free money has been passed to the largest and best connected US institutions / individuals. This, alongside the Federal Reserve purchasing Treasury bonds (to artificially lower the cost of federal government borrowing and boost the supply of dollars chasing the remaining assets) and mortgage backed securities (to artificially lower mortgage rates) has resulted in an asset explosion. This explosion has rewarded asset holders with vast riches and punished young adults, the poor, those on fixed incomes. These folks in the latter group get none of the asset wealth effect but instead get the fast rising costs of living due to the asset appreciation. When the Federal Reserve continually suggests they aren't responsible for the exploding US is a bald faced lie.
Same as above, but focusing on the 15 to 54 year old employment to population ratio (not the silly unemployment numbers the BLS puts out...just dividing the population by those employed among them...white line). The Federal Reserve has two Congressionally mandated jobs..."promote effectively the goals of maximum employment, stable prices, and moderate long term interest rates." You can forget stable prices (as the Fed has, via a system of discounting inflation) and just focus on full employment. As you'll note, the US has achieved "full employment" four times since the inclusion of females into the workforce...'89, '00, '07, '19...each time with employment around 75% of the available population. But note the declining rates, resulting in greater debt, resulting in soaring asset bubbles (and once those failed) notice the soaring QE and zero interest rate policy...resulting in the greatest rise in asset appreciation in US history. Asset holders made rich (for being asset holders)...those with little or no assets made poor (for not being asset holders). Simple stuff.
Below, again 15 to 54 year old horizontally moving population plus falling employed among them, ever lower Federal Funds Rate, and ludicrously vertical Wilshire 5000. In case you are wondering, this asset explosion is not a naturally occurring phenomenon against over a decade of zero working age population growth and seven million fewer employed among them. Nah, this looks like a currency collapse in progress...and once it goes vertical (Wilshire, Bitcoin, etc.) know you haven't got much longer to go (although we likely have significantly further to go in the vertical explosion...before the whatever it is that follows). Second and third charts below throws Bitcoin into the mix, putting it's meteoric rise into context against demographics and the Federal Reserve's demographically driven Treasuries buying spree (and the concurrent hard stop of foreign buying of Treasuries).

While nobody can say whether immigration will return to high levels, fertility rates and births are scraping record lows...and simply gauging the feeder population that is the 15 to 24 year olds (chart below of population / employed among them), you should have a fairly good idea of why a return to a growing working age US population isn't likely.

Finally, here's how this plays out regarding the most fundamental of human needs...shelter or I'll stretch out to the 15-64yr/old population and employed among them versus annual housing starts and the Federal Funds Rate (%). The Federal Reserve purchasing of MBS / QE has artificially pushed mortgage rates to record lows to induce an artificial housing frenzy amid a secular turn to outright declining potential buyers and soaring quantity of potential sellers (elderly who already own homes). If I didn't know better, I'd think the Fed hates young adults and is setting them up to be the bag holder of an awful oversupply of very expensive housing when the bottom invariably falls out...again.
Some say these are the seeds of the second American revolution as a class of unelected, undemocratic central bankers enrich a tiny majority at the expense of the majority...but I just like making colorful charts.

Extra Credit - 15 to 74 year old population / employees
For those curious how this looks on the widest possible cross section of population/potential employees, the following are the same charts but showing the 15 to 74 year old population and employees among them.

Last chart is pretty important, because it really highlights the declining participation of the aging population...suggesting that "full employment" will be significantly lower than '06 and '19 at much greater expense and require significantly greater QE to enable it all.
Invest (wtf) accordingly.

Sunday, February 14, 2021

Global Depopulation - Two paths, One Destination

Play along with me while we consider the ultimate barometers of economic wellbeing that are fertility rates and births across the developed world, China, and the RoW (rest of the world).  How fertility rates have freefallen to predominantly negative rates. How the developed nations fertility rates turned negative first, then China, then most the RoW (& soon nearly the entire world).

A quick perusal of the chart of global fertility rates, by income groups below, shows a sharp and sustained drop in global fertility since 1970. It is well understood how (and why) China did this...less well understood how (and why) the developed world got there first and has sustained it for decades. My supposition is that declining fertility rates worldwide are primarily due to central bank set interest rate policies which have consistently encouraged debt and asset inflation well ahead of real income inflation. These rising costs of living have particularly punished those with little or no offsetting assets...chief among these, young adults among the childbearing population. The decades long squeeze has slowed marriages to a crawl and sent births tumbling. Given family formation and childbirth are a choice now with widely available contraception...the choice is increasingly, no.

Data below is from UN World Population Prospects 2019...future fertility and birth estimates are a more realistic average between UN median and low estimates.

Below, annual births per income groupings (plus average group gross national incomes per capita are called out). Births only continue to rise among the very poorest and least able to consume. Births among all other income groups are in secular decline. From a consumption standpoint, it takes nearly 50 more poor consumers to replace the consumptive decline of every one high income consumer, nearly 12 more poor to replace the loss of every one upper middle income consumer, 10 more poor to replace the consumptive loss of every 1 Chinese consumer. The math on the ongoing declines among high, middle-upper, Chinese, and now even lower middle income consumers being replaced by the poorest, lowest consumers comes nowhere near penciling.
Perhaps it's time to consider what role the Federal Reserve and developed nation central banks have had in this collapse...particularly versus the Chinese population control approach of a one child policy?  The developed nations, via interest rate policy, appear to have achieved consistently lower birth rates than China's autocratic approach. Given the stated central bank focus of environmentalism, clearly the most important component in controlling emissions, resource depletion, etc. is controlling the quantity of consumers (particularly among those that have high rates of consumption). It has been five decades in the turning of this ship...but now organic demand (quantity of 0 to 65 year old consumers w/ capability to consume) is set to fall indefinitely. Absent the population/consumer growth of the consumer nations, there is no transmission mechanism for lower middle and low income nations to export there way to higher gross national incomes, per capita. In fact, the lower middle and low income nations are likely to see their portion of the pie begin falling dramatically as developed demand for their goods and labor consistently wanes.

Below, the female childbearing populations of the differing income groupings. The long declining female childbearing populations of the developed (despite immigration) coupled with severely negative fertility rates versus the decelerating childbearing growth and decelerating fertility rates of the lower middle (India, etc.) and low income groupings. Like most things, there is likely a tipping point at which the lack of organic population/consumer growth can no longer be hidden by debt and population growth among the poor and elderly. We are likely there.
Seventy years of Federal Reserve interest rate policy managing the dollar as the global reserve currency...with two distinct periods. Thirty years of interest rate hikes, followed by 40 years of interest rates cuts. Below, federal funds rate against the basis of global demand represented by the high and low income global child bearing populations, and resultant debt that declining rates have fostered.
Looking at the same groupings, but on a year over year change basis. It appears that changing global demand (inflation) and the annual change in the global childbearing consumer population have moved in sync decades. This doesn't seem to be a coincidence. Essentially, rates were hiked while demand growth was rapidly rising, suffocating commensurate capacity growth...pushing inflation and turning a growing population away from further population growth. Then as demand growth was decelerating, rates were dropped encouraging oversupply of new capacity...and deflation.  Almost simultaneous to the onset of the declining childbearing population, ZIRP was initiated. ZIRP has ushered in asset hyper-inflation (enriching primarily institutional and elderly asset holders) amid stagflation and population decline among the consumer childbearing population...and decelerating growth among the low consumer nations childbearing population.
Looking at the wider consumer vs. low-consumer under 65 year old populations, FFR%, and resultant debt. The consumer supertanker, that is the consumer under 65 year old population, has turned downward...even inclusive of immigration (factored into the chart below). The decades of interest rate cuts until arriving at ZIRP and the resultant inverse relationship of debt growth are fairly easy to see...and only when viewing their impact on population growth can their true purpose be seen.
Looking at the same as above, except on a year over year annual change basis. ZIRP, exploding debt (resulting in asset hyper-inflation), and global consumer depopulation are no coincidence.
Lastly, where the majority of global population growth is happening among the elderly...essentially an echo of where the world was almost seven decades ago except this population is living decades longer than the generations that came before them. But growth among this population is massively deflationary as elderly are credit averse and tend to pay down/off their debts...essentially destroying currency faster than the young population can create money via new debt.
It would appear that the seven decades of global reserve currency management coinciding with the unprecedented downturn in fertility, births, and population growth are highly correlated. The power to artificially determine interest rates, rather than trust in a free market, has reverberations throughout business, finance, and economics. But interest rate policy also seems to have guided birth rates and ultimately the population of this planet. Like most things, I doubt the Federal Reserve would even dignify this with a comment or discussion...but the data suggesting the Federal Reserve (BoJ, ECB, BoE, etc.) has, is, and will likely continue to be guiding depopulation (in like goal to China...but differing in method), while simultaneously choosing winners/losers for decades to come, seems fairly compelling.

In case there are still those that wonder at the transmission of declining interest rates/ debt asset appreciation...absent resultant GDP growth...please study the charts below charts of the Wilshire 5000 (representing all US equity) which has now doubled GDP. And finally the impact of shifting wealth to the few on the births among the many.
Focus on the Wilshire 5000 (representing soaring US asset inflation).
Finally, who is winning/losing based on asset inflation...chart below shows surging net worth of the top 10% of Americans (now owning over 70% of total wealth) versus declining portion among those with little to no assets (bottom 90% of Americans now holding less than 30% of the pie).
Portion of net worth by top 10% / bottom 90% versus annual US births.
Below, Census US birth estimates from 2000, '08, '12, '14, and '17 (estimating births through 2050) based on economic models and Fed's accommodative lending rates...and the reality seen on the ground. When inputs result in an entirely unexpected (?) output...perhaps a model adjustment is called for? Nah. Just do more of what didn't work.
Gauging US annual births (regardless parents status as legal/illegal) versus Federal Funds Rate, US marketable debt, Federal Reserve's balance sheet (below).
And dividing the future responsible for paying/servicing that debt (annual births) vs. the sins of the past that will be their lifelong yoke. Looking more like Bitcoin or what gold/silver would look like if their paper versions weren't being rehypothecated even faster than currency dilution. At some point, young will refuse to carry that weight any longer (and the $ will likely suddenly, violently become worthless in terms of fixed quantities of things like physical gold/silver).
Invest accordingly!!!...even if it may be the foundation of the second American civil war (dancing in an immoral system as long as the music plays)!?!

Sunday, January 24, 2021

Considering A Ballooning At-Risk Elderly Population And Pandemic

Pretty simple story today. Covid is primarily an old persons disease and the elderly population of "at-risk" is in the process of ballooning, thus Covid (or like diseases that might not have even previously qualified as pandemics)...are finding fertile ground among the significantly enlarging elderly populations.

With almost 96% of the US Covid related deaths among the 50+ year old population, despite the majority (65%) of cases among the under 50 year old population, it should be obvious Covid is a relatively higher risk for elderly and relatively low risk for younger persons.

According to the CDC Covid Data Tracker (found HERE), mortality among under 50 year old Covid patients is rare. Of the nearly 12 million cases among under 50 year olds, nearly 13,000 resulted in death (less than 2,000 deaths among the over 6 million cases among under 30 year olds). This is a mortality rate of 0.11% among under 50 year olds. Meanwhile, the 6.4 million Covid cases among 50+ year olds resulted in nearly 280,000 deaths, a mortality rate of 4.57% (yes, CDC data differs from other sources in total cases, deaths...but the CDC demographic breakdown of those deaths is the critical part...bear with me).

Below, mortality rates by age groups. Again, the older the infected, the higher the risk of mortality while, by and large, the immune systems of the under 50 year olds are statistically nearly always up to the task.

The big point we should be discussing is the ballooning of the most at-risk populations over the last decade and ongoing over the next two decades. According to UN World Population Prospects 2019, the 65+ year old US population is amid peak growth...and the highest rates of growth will be shifting to the oldest population segments of 75-85 and 85+ year olds. These populations will double over the next two decades and significantly higher rates of death will be observed due to this. Even a rather tough flu or mild "pandemic" agent among this population will likely see pandemic-like results.
Global View
But we live in a big, interconnected world. Thus, I expand to look at the relatively wealthier half of the world (those living in nations with Gross National Incomes above $4,000 per capita...or a per capita average of about $12, from World Bank, HERE). Immediately visible is the under 50 year old population of those at low risk from Covid (or subsequent diseases) has entered secular decline (green line). Population growth amid this half of the world (including US/Canada, EU, Japan, Aus/NZ, China, Brazil, Russia, Mexico, Indonesia, Colombia, Thailand, Saudi Arabia/UAE, etc.) has now shifted solely to the elderly. This under 50 year old decline is inclusive of ongoing rates of immigration. If immigration slows, the decline of the wealthier consumer nations under 50 year old population will be significantly faster.
Focusing on the wealthier nations elderly populations, again, the most at-risk segments will see the largest increases in size. Thus, even normal illnesses will have significantly higher mortality rates than previously seen. Even a tough new variant of the flu or new virus like Covid (or Covid mutations) will find multitudes of at-risk elderly with a high likelihood for abnormally higher death rates.
Viewing the population change by age groups over 20 year periods, the current 2020 through 2040 period stands out as something we have never seen. A collapse among the populations of low-risk and explosion of those at high-risk. This must be included in the thinking of what is pandemic and appropriate responses.
Given these demographics, the big question should be; are large numbers of deaths among the vulnerable elderly truly a pandemic? Reason enough to shut down economies, close schools, saddle young with unrepayable quantities of debt? Are there other means to safeguard the elderly while allowing the majority of the world to remain open? Is Covid a one-off or the beginning of virus' that are mild for the larger population but that will play havoc among the elderly? Are ongoing shut downs and massive increases in debt the appropriate long term response to what is likely a long term problem? Hopefully food for thought.

Postscript: Corona-virus cases, severe cases (hospitalizations), related deaths by age groups in my home state of Oregon (currently in an ongoing lockdown, including schools, restaurants, gyms).
  • Under 30 year olds = 0.2% of deaths, 8.5% of the hospitalized, 36% of cases
  • 30-60 year olds = 9% of deaths, 32% of the hospitalized, 46% of cases
  • 60+ year olds = 90.8% of deaths, 59.5% of the hospitalized, 17% of cases

Monday, December 21, 2020

"You Met Me at a Very Strange Time in My Life"

As we near 2021, I offer a prepper to detail where we stand demographically heading into the new year and close with a great clip from Fight Club summing up where we stand.

To begin, I'll divide the world into two roughly equal groups, consumers and non-consumers, using the World Bank gross national income per capita.

"Consumers" are half the worlds population, have average income per capita above $4,045...enjoy 80%+ of the income, savings, access to credit and likewise consume 80%+ of the worlds exported commodities and 80%+ of the worlds energy. They have average income of $12,000'ish. Consumers include:

  • 83 High Income Nations ($12,536+) - EU, US/Canada, Japan, Australia/NZ, Saudi Arabia/UAE, S. Korea, Taiwan, Israel
  • 56 Upper Middle Income Nations ($4,046-$12,535) - China, Mexico, Brazil, Russia, Iran/Iraq, Indonesia, Argentina, Thailand, Colombia/Venezuela

"Low or Non-consumers", the other half of the worlds population, have average income per capita of a few hundred dollars to $4044...earn less than 20% of world income, savings, access to credit and consume less than 20% of all exported commodities and burn less than 20% of global energy. They have average income of about $1,200 a year...10x less per person among non-consumers than the average "consumer".

  • 50 Lower Middle Income Nations ($1,036 to $4045) - India/Pakistan, Philippines, Bangladesh, Nigeria, Egypt, Vietnam, Ukraine, Honduras/Nicaragua/El Salvador, Bolivia
  • 29 Low Income Nations ($1,035 and below) - Afghanistan, Haiti, Somalia, Yemen, Syria, N. Korea, Madagascar, Chad, Uganda

Critically, as you read through this and see large scale present and future population declines among the consumer will note that while there is growth among non-consumer populations, it is more typically on a 1:1 basis...meaning the decline of one "consumer" is being met with the replacement of one "non-consumer"...each replacement resulting in something like a 90% decline in consumption capability.

First, a look at the head waters of global demand...annual global births. The yellow shaded area in the chart below shows global births peaked at approx. 135 million annually in 1989...and have not likely ever returned to that high water mark. Although UN expected 2020 births to surpass the 1989 quantity...when the UN releases its next updated report, births will have been adjusted down by millions to reflect the reality demographers have been witnessing, putting births well below the 1989 peak. And in 2021, the dearth of global pregnancies in 2020 will turn into one of the largest birth dearth in history.

Family formation and resultant births is the greatest force in creating growing demand (inflation). UN data shows that annual "consumer" births (blue line, below) have declined by 18 million from the 1989 peak back to the same number of births as were seen in 1950.  A full roundtrip, with 4 decades of rising births followed by 3 decades of declining births. These consumer nation numbers are generally inclusive of the births to immigrants within the consumer nations...absent that, the decline would have been much steeper. Low consumer nation births (yellow line) have risen by the same quantity as consumer nation declines. Both are expected to maintain their current trajectories...Low consumer births continuing to replace consumer births 1:1.

For those paying attention, inflation (as represented by the Federal Reserve set Federal Funds Rate) has been declining nearly in tandem with the declining consumer nation births, and global debt has blasted off inversely...with the impact of pulling demand forward against a future with organically declining demand. The question here, how would an ever smaller future of consumers pay off or outgrow ever more debt???

Narrowing in on high income nation births versus low income nation births...Not hard to see where this is going.

Given 30 years of declining consumer nation births, no surprise the childbearing population among consumer nations is now in decline versus ongoing growth in the low consumer nations childbearing population.
Below, checking the year over year change of the high versus low consumer populations. The acceleration and deceleration of the "consumer" childbearing population (essentially mirrored by the Federal Funds Rate), note the apex of growth among low consumer nations has come and gone. Declining consumer nation childbearing populations and decelerating childbearing growth among low consumer nations is all we can expect from here.
And the demographic flow through means the apex of the 0-65 year old consumer nations population has just been reached, and continued declines are to be expected from here. Again, the consumer declines are anticipated to be offset by low consumer population growth (much of the anticipated growth to be significantly longer low consumer nation lifespans leading to larger elderly populations...while growth among low consumer younger populations decelerates).
Again, checking the year over year change that is now turned to consumer nations secular depopulation and decelerating growth among low consumer nations.
To round out the picture, 65+ consumers versus 65+ low consumers.
Year over year change in consumer vs. low consumer 65+ year old populations.
US of A
Despite all the US population growth and immigration, the US has only marginally exceeded the 1957 peak in annual births in a single year, 2007. And since that dual peak in 2007, births have again fallen by nearly 700,000 (-16%) fewer births annually. However, the imminent 2021 Covid-19 induced waterfall event in births will see 1+ million (-26%) fewer births than the '57/'07 dual peaks. Among major influences on the birth rate is the Fed's FFR% and asset purchasing resulting in large asset inflation essentially punishing young adults whom have few to no assets. Expenses rising  well ahead of incomes. Resultant lower marriage rates, births are an outflow of Federal Reserve policy.
Below, a simple birth to debt ratio to gauge the creation of all that debt against the future responsible for outgrowing, repaying, and/or servicing that debt. The curve of falling births and exploding debt has gone parabolic.
Working Age Population
To wrap it up, check the 15 to 64 year old population (blue line) versus those employed among the same age group (green line). Shouldn't be hard to see the decelerating population growth and the even faster decelerating employment growth.
Same population/employment as above but adding in the Federal Reserve set FFR% and expansion of Federal Reserve balance sheet (QE)...and the impact of those policies to encourage greater federal debt.
The Federal Reserve is tasked w/ stable prices (lol) and full employment.  Below, you can see the means to achieve full employment has been ever lower interest rates, more QE, to encourage ever higher debt fueled economic activity.
But if you add in the Wilshire 5000 (representing all publicly traded US equities), you can see quite clearly the primary winner of each progressive "full employment" cycle are not the employees but a shrinking percentage who hold a fast growing percentage of assets.
I'd be a bit remiss not to take a peek at housing. Below, annual change in the working age population (white line), 30 year fixed mortgage rate (grey line), and housing permits (blue line). What is taking place now has never happened as the Federal Reserve's interest rate setting and QE have pulled the 30 year fixed mortgage rates to record lows...while housing permits are being issued far in excess of the declining population of potential buyers.  All this while the elderly population, with the highest homeownership rates, turn to net sellers as they downsize or leave inherited properties to their heirs. In all cases, a surge of housing units is coming for a declining basis of buyers.
Looking a little closer at the same data as above, from 2000 to present.
Debt n Demographics
Quick review of US marketable public debt (red line), vs. Intragovernmental debt (debt held by SS trust funds, etc.), and Federal Funds rate. Essentially all debt issued from here forward will be marketable as the demographically driven IG rolls over to net declines. The US will be more reliant on foreigners, the Federal Reserve, and institutional buyers than ever before. This while the US government can afford essentially no higher interest payments than the present ZIRP induced reality.
Checking the annual change in marketable (red columns) vs IG (blue columns) debt, likewise change in 0-60 (green line) vs. 60+ (yellow line) year old US population, and again the Federal Funds rate.
For those curious to see the relationship of lower rates and ZIRP (black line) to encourage soaring debt; below are total US debt/GDP (blue line), Federal Government debt/GDP (red line), and the resulting heavens bound Wilshire 5000.
US Treasury Bonds
Below, Federal Reserve held US Treasury debt (yellow line) versus foreign holdings (black line). With so much more demographically driven issuance to come and so few buyers willing to buy US debt anywhere near current rates...the only natural buyer is a buyer whose motivation isn't profit but control. I'll bet the Fed isn't about to play the QT card again.
Comparing the soaring Federal Reserve held Treasury's to the largest holders of US debt; China, Japan, and the "BLUICS" compilation (Belgium, Luxembourg, UK, Ireland, Cayman Island, Switzerland). Despite running large dollar trade surplus', foreigners no longer recycle their excess dollars into Treasury's. But they must go somewhere...equities, precious metals, but perhaps particularly Bitcoin?
Only ongoing net buyer of US Treasury bonds are shadow banking nations with access to central bank swap lines rather than dollar based trade surplus'.  
Short and long of it...US is in a demographic driven decline, the federal government is committed to growth at all costs, the Federal Reserve is tasked with ensuring US Treasury bonds are not traded at "free market valuations".  And perhaps Bitcoin is the best way to short America?!?

Finally I mention Bitcoin and just show it versus the Federal Reserve's combined holdings of Treasury's and Mortgage Backed Securities, plus the operations undertaken leading to an ever larger balance sheet. The flood of $'s and removal of large scale quantities of assets are pushing asset prices higher but the combination of cheap interest rates (are boosting long term capacity) while only offering short term boosts to demand, are pushing commodity prices ever lower. Make of this what you will.
Anyway, about now the nature of 2020, 2021 should be more clear...this is no typical business cycle or pandemic. Decades of demographic deceleration and now outright demographic declines are at the heart of central bank ZIRP/NIRP, QE, and soaring debt. Demographics are destiny and by now is should be clear there is no means to ever outgrow this debt. This appears to be the initiation of a global reset, de facto or otherwise.

To wrap it, at the conclusion of Fight Club, after having killed his alter-ego & arranged for the destruction of all global credit records...Ed Norton says, "You met me at a very strange time in my life" as the credit records are all destroyed.  I believe the world is equally living a dissociated reality but will soon become painfully self aware of the truths we have so long disavowed. Enjoy the clip...Fight Club
*Population data from UN World Population Prospects 2019.