Why is this important? Context. I'm going to show that the combined OECD+China+Russia+Brazil (which make up 43% of the global population but consume 70% of all the oil) are in the midst of a demographic transition which will change everything...not like a temporary storm or hurricane but like a climate shifting ice age that will require massive change and realignment to sustain ourselves. The long period of population growth, and specifically of the growth of the core 15-64yr/old population among these nations, which has driven economic activity for millennia and certainly since WWII has come to an end. But not only come to an end but is about to start shrinking significantly. The implications of a pie no longer growing but moving to outright shrinkage will change everything.
To explain why this time truly is different (and why new, entirely different thinking & solutions are necessary), I'm going to use oil consumption as a proxy for general global consumption. Oil consumption is broken down among four groups:
- The wealthy 34 OECD members (membership HERE)
- China, Russia, Brazil
- India, Africa
- Rest of World
Total change by period to the 15-64yr/old population, below. Massive population and demand growth has turned to shrinkage.
The average annual change during each period to the 15-64yr/old core, below.
But what about India? India represents 1.3 billion or almost 20% of earths population. While the adult population of the OECD, China, Brazil, Russia have ceased growing...India has not and is the primary remaining population growth engine alongside Africa. Indian growth by period, below.
Indian average annual population growth, by period, below.. Noteworthy that India has already seen peak core population growth and continues decelerating from here on.
So, India plus Africa and the poorest parts of the world are still growing...but alas, they simply haven't (and won't have) the income, the savings, the access to credit to ever consume at Western or even BRICS levels of consumption. Nor will they have the healthy, growing global markets to utilize their cheap labor to export their way to prosperity.
Finally, as of 1990 the youngest segment of the global population (yellow columns below) essentially ceased growing but few seemed to notice due to the elderly (blue line) living so much longer than previous generations.
M2 Money & CB Balance Sheets
Tragically, the Fed and CB's are applying the wrong remedy for an ailment the Fed won't openly acknowledge. As population growth decelerated, CB's and the Fed encouraged ever cheaper credit, money growth, and debt in the place of population growth (and the demand it creates. US, EU, and Japan all compared below.
Remember the 15-64yr/old population growth above...not quite running anything like the growth in the money supply below.
But since money creation is far in advance of the population growth (and outright shrinkage in many locations), CB's have set their course to buy and remove assets from the market to maintain a falsely created demand and valuation. The Federal Reserve purchases as a % of US GDP, below.
Japanese asset buying. The Bank of Japan simply prints the money to purchase and permanently "retire" the assets, below.
Finally, the rising tide of ECB QE and asset purchases spreading through the EU. The ECB balance sheet will soon hit new peaks with no slow down in sight as it buys up both sovereign and corporate bonds. Otherwise, a free market would be left to set prices, something wholly unacceptable to the central bankers now in power around the world.
Perhaps all this helps explain why when full time job creation is at it's lowest in cycle history adding only 300k net new FT employees over 9 years, the stock markets are more closely following the Fed's and central bank balance sheets at all time highs. In total vs. each other, below.
And highlighting the change per cycle, below.
An economic and financial system premised on growth over sustainability may not have been wise. And for all the Fed's intelligence and intellectual firepower, the Federal Reserve seems to be entirely lacking when it come to wisdom. It certainly pulled forward decades of consumption with huge advancements made that would not have otherwise come to be. However, the bill was always going to come and it was simply awaiting the trigger mechanism. Decelerating and outright population declines in many locations were that trigger. I have made every effort to outline the change and unfortunately, that is the easy part. The hard part is the courage and cohesion to outline a course of corrections and adjustments which allow for a war-free transition from this flawed non-market based (centrally planned economy) to a true free market. If we will not acknowledge and face the flaws of our current system (with its clear minority of winners and majority of losers), allow an orderly wind-down of debts and the flip-side obligations that cannot be paid...then we are almost sure to end in conflicts (internal and/or external) of which the possible outcomes are truly awful. We still have a chance to do the right thing as hard and painful as the adjustments will be...or a chance to do nothing with almost sure terrible consequence.