2019 was another "rung" in the ongoing bull market. The trifecta of a resumption of QE, interest rate cuts, and a flood of federal debt coupled with ongoing stock buybacks and corporate tax cuts all fueled an asset explosion. But the Census Bureau was kind enough to release their 2019 data (HERE), and it was simply as divergent to the positive market data as could be. I could only find once in US history that total US population grew at such a low rate (below 0.5%) and that was due to the 1918-1919 global influenza pandemic (Spanish Flu) which in the aftermath of WWI killed between 20 and 40 million globally and nearly 700,000 Americans. This was almost ten times those Americans that perished in the war to end all wars. The reality is the lower organic population growth (and resultant consumer growth) goes, the greater synthetic substitutes are employed.
Why all the debt?
The chart below should be the chart of the year except the US picture is relatively "better" than most advanced nations. It is the ongoing collapse in US population growth among the under 70 year-old population versus surging 70+ year-olds. The Census detailed that total 2019 population growth fell to just 1.55 million and this was due to ongoing declining total births and collapsing net immigration (much to due with stronger border enforcement). 2008 was the precipice and under 70 year-old population growth has been tumbling ever since. As a reminder, it is the 0-70 year-olds that make up 90%+ of the work force, that undertake 90%+ of the credit, and it is they that drive the increase in the money supply in our fractional reserve banking system. When their growth is minimal, the deleveraging of the fast growing elderly essentially destroys currency causing a cascade of deflation. Only via pure monetization underway now can central banks delay (postpone) the overwhelming tide of deflation and asset collapse and generationally redirect the losses.
As I discussed in the onset, the chart below details the annual percentage growth of the under 65 year old population (yellow line) versus the debt to GDP ratio with periods of significant debt increases in red columns and debt to GDP declines in blue columns. The severity of the population decline due to the Spanish flu in 1918-1919 was not just the deaths, but the majority of deaths were among the 15-35 year old population. This large loss of those among childbearing age (and resultant employees, consumers) caused a vacuum felt through the 1930's. Only now, a hundred year later, is the US revisiting what is essentially zero growth but rather than due to a pandemic, this time the situation is structural rather than accidental. The vacuum being created this time is beyond anything previously experienced.
How much debt?
In order to see how 2019 fits into the bigger picture, I pull back to show US federal debt (split between public debt versus intragovernmental trust funds) and the federal funds rate. The $12+ trillion in net additional public debt issued since 2007 is only set to pick up pace as federal spending rises, taxation continues declining, and unfunded liabilities metastasize.
Viewing the same but breaking out annual federal debt split between the change in public and intragovernmental debt versus the federal funds rate. Both charts highlight the shift from Social Security and like IG trust funds (mandated to buy US debt with "surplus" funds) to Public (and pretty much solely the US Public as foreigners have ceased net buying). The Treasury Bulletin makes the lack of natural foreign or domestic buyers crystal clear.
Who bought all the debt?
Below, comparing the increase in Treasury holdings over the 2009 through 2014 versus 2015 through 2019 periods, the divergence is again clear thanks to Treasury Bulletin reports (HERE). The Federal Reserve and foreign buyers carried 70% of the new issuance from '09 through '14, while domestic buyers took down over 70% since QE 3's end. Since QE3 ended, that is supposedly nearly $4 trillion in low yielding US Treasury debt that domestic sources bought instead of stocks, or real estate, etc. Dubious is the word I would use to describe the likelihood of non-manipulated record asset prices in stocks, bonds, and real estate while supposedly simultaneously domestic sources poured $4 trillion into low yielding bonds?!?
And detailing the change among the domestic sources over the same periods as above. According to the Treasury, we can only really say who it isn't. Not banks, not savings bonds, not private buyers, not insurers, not state / local buying...it continues to be "other investors" (individuals, GSE's, corporates/non-corporate business', & brokers/dealers). Again, the credibility of domestic investors have trillions available to plow into low yielding Treasuries while simultaneously also driving stocks, etc. should be laughable. I have no evidence who did buy all that debt, only a long list of who didn't.
Debt & Employment
With minimal present and future working age population growth, the fact that the US is at historically full employment should be of great concern. With so few additional persons entering the potential workforce and nearly all those capable and willing already working...there is little further employment growth possible...and without that there is little to no further growth in consumers, home buyers, etc.. Throw all the debt and QE you want at this to get the existing population to consume more, but without further bodies available to work and consumer more...the party is over.
Debt and Population Growth Looking at annual births (blue columns below) versus changing age segments of the US population. The yellow line is the 15 to 40 year-old childbearing population and estimated to rise some five million through 2030...but as I showed above, the anticipated population streams of growth have been lost and thanks to tanking births and immigration, the childbearing population is unlikely to grow much...and with ongoing falling births, soon the childbearing population will be in decline. From there a declining childbearing population with negative birth rates leads to a likely rapid decline in births.
Debt in Perspective
Some attempt to detail the lunacy of the debt creation against a fixed asset like gold, but to wrap this up I show annual US births (inclusive of all the millions of immigrants both legal and illegal) versus US federal debt.
And dividing all that rising debt versus the annual quantity of newborns reveals a pretty unpleasant picture...the elderly saddling the youth with unrepayable debt to maintain a lifestyle that is utterly unrealistic and unachievable except via generational theft. Not the kindest of parting gifts.
Plus, I got last place in my college football bowl pool...again. Unbelievable. There's always next year. Anyway, happy 2020 and I hope you find this information useful in understanding what is happening all around us.
First, chart of the century...literally. For those engrossed in the current and engulfing repo fiasco, QE, and monetization...it is helpful to pull back and clarify what it is that is causing the existing economic and financial system to fail? It was, is, and will be a Ponzi to its last day and Ponzi's fail for lack of new suckers. In this case, those willing and able to undertake new credit (debt) that enlarges the money supply in our fractional reserve system. The chart below shows the global annual growth of the 20 to 65 year-olds versus 65+ year-olds (both excluding Africa). 20 to 65 year-olds world over utilize credit (debt) while 65+ year-olds extinguish debt (deleverage). So long as the growth of those levering up outstripped those deleveraging, the system could continue. But as you'll note, in 2008, the entire global system shuddered as accelerating growth of potential workers ceased and began decelerating...while the growth of non-workers accelerated. By about 2024, the annual growth of non-workers (deleveragers) will overtake annual growth of potential workers (debtors). Those rapidly extinguishing debt in old age will outnumber those undertaking the new debt. Those in retirement or in death offloading assets will outnumber those buying those assets. The non-technical name for this is a "shit-show" and this is why central banks, federal governments, and ultra wealthy are aligning ever tighter to save themselves.
This was never going to work...but that doesn't mean everybody has to lose. And the ever tightening circle of winners are attempting to lock in their gains at the expense of the vast majorities losses. QE is the salve for inadequate credit and money growth due to decelerating population growth among young versus accelerating population growth among elderly. The forces of elderly deflation are outstripping the inflationary forces of growth among the young.
Whether you agree, disagree, or are still pondering...the charts below show the global population of 15 to 24 year-old and 25 to 34 year-old potential childbearing females (excluding Africa) and total annual births (excluding Africa), dashed lines. Why exclude Africa? As a continent, Africa consumes just 3% of global energy, imports about the same in finished goods, and generally consume so little as to be a rounding error...but they are the bulk of population growth. However, Africa provides a very low level of emigration compared to Mexico, India, and the rest of the world. The geographic barriers from sub-Saharan Africa (where the vast majority of high fertility nations exist) and extreme levels of poverty have constrained emigration thus far.
So, when the global population growth among 15 to 24 year-old females (x-Africa, blue line) simply stalled from 1989 through 1995 and annual births declined by 20 million (black dashed lines), there may have been good reason to pay a little closer attention. When the final impetus of 15 to 24 population growth concluded in 2008 and the echo rise in births likewise concluded, even closer attention should have been warranted. Since 2008, the final piece of demographic energy came through the 25 to 34 year-old population (brown line) and peaked in 2018. Now, from a childbearing standpoint, it is all downhill indefinitely. By 2050, the 15 to 24 female population will decline by another 32 million while the 25 to 34 female population will fall by 39 million. The UN projects births (x-Africa) will slowly and steadily decline as the childbearing population is in decline. Something far more dramatic is more likely.
The chart below flips the births (black line) from total annual to year over year change, against total female 15-24 (blue) and 25-34 (brown) female populations. The 18% deceleration in births from '89 to '95 coincided with low childbearing growth after decades of high growth. What comes now as the entire female childbearing population begins declining is likely an asymmetrical decline. The lack of growth coupled with the accessibility of birth control is likely to lead to a birth dearth unlike anything the world has previously seen. A species choosing not to reproduce for a myriad of reasons.
Next, the global (x-Africa) year over year changes in both the childbearing populations and the year over year change in births. The decelerating growth of females of childbearing age is plain enough and the large gyrations in births a confluence of population change, war, economic policies, birth control, etc.
And just in case the shape of the annual change in the global childbearing population (x-Africa) looks familiar (as it is the foundation of demand growth and inflation), I add the Federal Funds rate (yellow line)...plus the impact upon annual births. As an aside, strangely, from 1950 to 1981 as global demand growth was accelerating, the Federal Reserve chose to restrict the availability of money by raising rates thus choking the creation of new capacity to meet the rising demand?!? This was highly inflationary. And then, on decelerating demand growth from 1981 to 2019, the Federal Reserve has made money more available, creating over-capacity and deflation!?! Now as demand begins to outright decline, the return of ZIRP and likely NIRP inflating asset prices and costs of living far faster than incomes, further reducing demand and births. Honest mistake or has the Fed long held yet another unstated mandate?
Below, year over year change in childbearing and births in Africa. Is the strong deceleration in the growth of births in Africa from 2010 through 2018 an aberration or has something more significant begun? Getting accurate and real time data from Africa can't be easy so I won't overreact or suggest a major change is underway. I can only surmise it is possible that slowing first world activity is potentially trickling down upon African's determination to have more children and if this data is correct and sustained...the last bastion of population growth would go poof!?!
Viewing historical and projected year over year changes in births of the world (excluding Africa, black line) versus Africa (yellow line). The declining births and resultant declining demand represented by the world will surely impact Africa and result in a far lower growth path (or no growth?) than presently projected by the UN. So many of the global economic and environmental models presuming ten or eleven billion persons on earth with far more consuming at "middle class" levels are garbage. An entirely alternate reality of massive over-supply and over-capacity against fast falling demand is so much more realistic.
A quick look at the change per period of 15 to 35 year old females (x-Africa) versus the change in annual births (x-Africa). From 1950 through 1989, the childbearing female population rose by 111% and annual births by 61%...from 1989 through 2018, the childbearing female population rose by 21% but annual births fell 15%. The UN projection from 2018 through 2050 is an 8% decline in females of childbearing age while births implausibly "only" fall 15%. Magnitudes greater decline is far more realistic.
Next, same as above in terms of change in millions. A projected decline of 71 million females of childbearing age is likely to result in a far greater decline than presently suggested.
As a point of reference, I am using data from the UN World Population Prospects 2019, released in June of 2019. This is important because it means that 2018 is the last year of actual observed inputs versus projections and assumptions thereafter. For the 15 to 34 year old female population, the UN has a long runway to simply advance an existing population forward. But projecting births forward is trickier. Large global fluctuations have been more the norm than the exception.
For the truly curious, I chart out the childbearing female populations and births, by region, from 1950 through 2050. Like real estate, while the global trends are clear, they vary widely by region. The first chart for each region is total 15 to 24 year-old and 25 to 34 year-old females versus total annual births. Second chart is the year over year change in both childbearing females and births. Knowledge is power. Western Asia (Middle East)
Azerbaijan, Bahrain, Cyprus, Georgia, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Palestine, Syria, Turkey, UAE, Yemen. Although presently in a decade long lull in growth among the childbearing, there is still some demographic energy yet to come. Still, UN projects no further growth in births.
Year over year changes. Again, like Africa, hard to know if the declines seen since 2008 are real and sustained...but highly noteworthy as nothing like this has been seen since WWII. Of course, the UN projections assume this is an aberration and return their projections back to "normal".
(Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan). Rising childbearing populations and declining births in the short term, flat to slightly up through the mid century.
The Stans are in the midst of declining childbearing and declining births last seen around the break-up of the Soviet Union. Still, some demographic juice yet to come through that may temper the declining births. South Asia (Afghanistan, Bangladesh, India, Iran, Nepal/Bhutan, Pakistan, Sri Lanka). The most populous region of the world has rolled over and a far more significant decline in births than the UN projects is likely over the upcoming decades.On a year over year basis, India (et al) are witnessing the decelerating growth among females of childbearing age and the impact of little growth among the childbearing and ongoing declining fertility rates is likely to see a far faster decline in births than the UN suggests through 2050.East Asia
(China, Japan, S/N Korea, Taiwan, Mongolia).
China's female childbearing population has fallen 25 million since 1989 and births down over 50% (-16 million) and yet far larger declines in those capable of childbirth are still upcoming and ongoing. Those willing to engage in childbirth seems to be falling even faster, as the aftermath of the 2016 "two-child" fiasco highlights. The female childbearing population will decline by another 50 million by 2050 and fertility rates are likely to go even lower. Unlike the UN projection below, annual births below 10 million are likely in the near term...and how much further it goes from there is the question. What will a country with 50 million unoccupied units of housing do as their population continues collapsing from the bottom-up (rhetorical question, Chinese government will be the buyer of everything eventually).
With Chinese childbearing population and fertility rates tanking, significantly greater declines in births are nearly a sure thing than projected by the UN.
Japan, patient zero in depopulation, has been watching their annual births collapse since 1950, down over 60% from peak births, and resultant childbearing population decline for fifty years now, down almost 40%. There really is nothing to stop or even slow the decline as this daisy-chain continues. An honest question to pose at this point is, when do we start to consider the likelihood that Japan as a state and society is in true peril of going into terminal decline or are we already passed that point?
Looking at Japan on a year over year basis, it is easy to see there is only further declines among the childbearing and the UN projected mild declines in birth through 2050 aren't credible. A far more realistic viewpoint would be births tumbling below a half million within the next decade...and a more pessimistic viewpoint puts Japan's future as a functioning nation entirely in question.
South Korea, like Japan...but much worse. South Korea is in population freefall with births down almost 70% since the 1960 peak and the childbearing population down almost 30% from the late 1980's peak. But the declines are just getting warmed up and the UN projection of flattish births against collapsing females of childbearing age is just silly. An unbelievable but more realistic scenario will put births down half again from here over the next decade and children in South Korea will be nearing endangered species status?!?
Below, South Korea on a year over year basis, and the upcoming large declines in females of childbearing age are hard to miss, but strangely, the resultant decline in births through the mid-century aren't depicted by the UN. Perhaps the economic, national, and societal implications are too serious to depict?
South East Asia
(Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam). Annual births peaked here in 1985 and have flatlined for three decades, but now the flatline is coming through the childbearing population and resultant declining births are projected...the only question will be how large the declines will be?
S.E. Asia year over year, below. Why this time is different isn't hard to see as the demographic momentum flips from growth to decline.
Like South and South East Asia, Central America's births have long been flat...so long that now the childbearing population is likewise flat. How steep the resultant decline in births will be is the trillion dollar question.
Year over year change in Central America, below. The historic deceleration and projected declines are very clear.
South America's population is more mature and the declines are already well underway.
Year over year changes in S. America below...the demographic deceleration is over and now come the outright declines.
(Europe minus East Europe). Births peaked five and half decades ago and have fallen by 1/3 since. The childbearing population peaked in the mid '80's and has fallen by a quarter. There is nothing but more of the same in the future. Western Europe year over year, below. Despite all the immigration, really no demographic light out there. Persistent declines in the childbearing population and likely even greater declining births than projected by the UN below.
(Belarus, Bulgaria, Czechia, Hungary, Poland, Moldova, Romania, Russia, Slovakia, Ukraine). The impact of the Soviet Union break-up is still pre-eminent in this part of the world but the in the aftermath of the GFC coupled with a significant decline in the childbearing, a similar decline in births is likely beyond the rather minor decline projected by the UN. The year over year view of Eastern Europe, below. The major impact of the declining childbearing population through the next decade is evident.
Canada / Australia / New Zealand
The combined Canadian, Australian, New Zealand childbearing and births are among the more demographically positive. Some further growth is likely despite negative fertility rates, based on growing childbearing populations thanks to ongoing immigration.
Year over year, below. The days of heady growth are gone, but some demographic growth likely remains.
As for the US, the days of a growing childbearing population are done and thanks to ongoing immigration, a flat childbearing population is likely to persist. However, with ongoing declining fertility rates, declining births are far more likely than the strange UN projection of an imminent birth burst. This is the same burst that the Census and UN have been projecting since 2008 while births continue moving in exactly the opposite direction. My best guess for births is the continued path of decline, in dashed yellow below.
Year over year, two different views...one based on observation and one based on theory.
Finally, a close up of annual change in US childbearing and births from 2000 through 2040...and the difference between the UN and my projection from 2020 through 2040, about 12 million fewer births. But in truth, my best guestimate could be far too optimistic as 2019 is likely to see a new record low in births, according to CDC data through 2019 Q2.
The story I'm not hearing... July 31...Debt Ceiling Deal - July 31st of this year, Senate Democrats carried President Trump's budget deal eliminating the debt ceiling through July 31st of 2021. This after a majority of Trump's House Republicans voted against the budget deal but House Democrats overwhelmingly passed it. And thus the debt ceiling was no more. Since July 31st, the Treasury has issued over $1 trillion in net new debt but that is just the start. Trump tweeted there would always be plenty of time to make budget cuts "later".
July 31...Federal Reserve begins series of interest rate cuts - On July 31st, the Federal Reserve begins cutting rates and has cut rates from 2.4% to 1.55% or a 35% reduction on the cost of overnight intra-bank lending, the foundation of credit.
August 21.. Federal Reserve restarts QE - In August, the Fed ceased quantitative tightening (QT) and restarted quantitative easing (QE). The Federal Reserve balance sheet has expanded by over $300 billion in short order, with an $180 billion increase in Treasuries held. The supposed rationale for the QE restart, inadequate excess reserves or liquidity...
Excess Reserves Not Restarted - With all the new QE, hardly any of it has been added to bank excess reserves...just a paltry $16 billion out of the $306 billion in new currency digitally conjured.
Direct Monetization - That is $290 billion in new dollars directly in banks hands...and banks do what banks do, which is leverage those dollars by 5x's to 10x's (or more), resulting in...
Asset Explosion - Using the Wilshire 5000 as a proxy (as it represents all publicly traded US equities), US equities have risen $2.42 trillion over the 4 month period as all the new digitally conjured cash has been passed to large banks for the "assets" they held...or about a 8.5x the quantity of new "not QE" and "not excess reserves".
What does that look like?
In dollar terms over the past four months, US debt up over $1 trillion, Federal Reserve held assets up over $300 billion, Fed held Treasuries up $180 billion, Excess Reserves up only $16 billion, direct monetization of $270 billion...resulting in an increase of $2.4 trillion in the Wilshire 5000 market weighted capitalization (chart below).
In percentage terms in just four months, total US debt is up 4.8%, Federal Reserve held assets up over 8%, Fed held Treasuries up 8.6%, excess reserves up just 1.2%, direct monetization up over 18%, and equities up over 8% (chart below). Not shown is in addition to all this, the Federal Funds rate was also reduced by 35%.
Trump and the Democrats agreed to spend without limits, Trump and the Federal Reserve agreed to QE4 and mainlining the digitally created cash into the economy (errr...financial assets) via direct monetization. Trump tweeted, "Budget deal is phenomenal for our great military, our vets, and Jobs, Jobs, Jobs! Two year deal gets us past the election. Go for it Republicans, there is always plenty of time to CUT!". But the true result has been to massively enrich the few who own the vast majority of all assets which are surging upwards and pass all the debt along to the working stiffs. And once you start pumping digitally counterfeited dollars directly into the markets, you can never stop without a massive asset collapse. Trump, the Fed, and politico's have broken the market and now they own it.
Trump is truly an evil genius...Dem's are truly self serving dolts...and the Fed is truly the best central bank money can buy. Or the Fed is the evil genius, Dem's still self serving dolts, and Trump is the best president money can buy. Either way, Trump, the Democrats, Republicans, and the ultra-wealthy are laughing all the way to the bank. And the vast majority of Americans have been sold into debt slavery.
Since 1981, household assets as a percentage of disposable personal income versus federal funds rate with primary sources of debt detailed below. The breakdown of mortgage debt and surge of federal debt since 2008 are not so hard to see. Plus the Federal Reserve balance sheet is included as those assets will only be increasing from here on out.Below, debt creation by periods, comparing 1960 through 2000, 2000 through 2008, and 2008 through 2019. Relatively stable corporate debt growth (shifting from capex to share buybacks and dividends due to decelerating organic demand growth), collapsing mortgage debt growth, and surging federal debt growth. And collapsing mortgage debt and surging federal debt is only just getting started, because...Mortgage debt won't be rising anytime soon and all debt creation will be up to the federal government. The chart below shows the annual change in young (working age) versus elderly...a surging population of elderly versus huge deceleration of growth among the working age population. Just a reminder in our fractional reserve system where money creation resides with the banks, on average elderly earn and spend half as much as working age persons and "destroy money" via deleveraging while working age persons "create money" via undertaking new loans (debt). The long standing balance of growth among inflationary young overwhelming growth among deflationary elderly is, and will continue to be, broken...as is our economic model of perpetual growth.The current and future situation is one of collapsing credit and collapsing money creation as the growth of deflationary elderly overwhelms inflationary working age growth...and into that entirely predictable situation, steps the Federal government, Federal Reserve, and ludicrous politicians to serve the interests of the few at the expense of the many.