Thursday, March 8, 2018

The Most Important Economic Charts...Aren't Economic Charts

The global economy is the sum of its production of goods and services versus its capability to consume those.  This article will outline the mismatch of fast rising capacity versus the deceleration of consumptive capability.

As for productive capacity; mechanization, innovation, technology, and cheap debt have helped ramp up the potential.  Going forward, a flurry of advancements including AI, robots, and autonomous vehicles are among the slew of factors that will drive productive capacity even higher.

Regarding the potential capability to consume; each person is essentially a unit of consumption multiplied by their earnings, savings, and access to credit.  But I really want to focus on the childbearing population (ages 15 to 45 years old) and births to show what is taking place and what is yet to come.  In the charts below, I exclude Africa because they haven't the earnings, savings, or access to credit to be anything more than a very minor rounding error from a global economic standpoint...but they represent such a large portion of global population growth as to skew the data.  Likewise, African's represent a very small portion of global immigration (detailed HERE).

Global Childbearing Population (x-Africa)
In the first chart below, maroon columns show the annual change in childbearing population and blue line the total childbearing population.  Annual growth peaking in 1988 at +46 million annually...down over 90% to just +4 million).

Below, the annual change in childbearing population (as a percentage of total x-Africa population...maroon columns) versus total childbearing population (blue line) and adding the federal funds rate (black line) and global debt (red line).  Tellingly, the fed funds rate (approximating inflation) peaked simultaneous to the peak in annual childbearing population growth.  The rise, peak, and now deceleration in the annual childbearing population has essentially been the driver for the rise, peak, and now decelerating growth in demand.  The substitution of fast rising debt for the decelerating population growth is plain.  The subtle uptick in yoy childbearing population change over the next five years is the end of the road for growth...and from there on there is only outright declines likely hand in hand with negative interest rates and parabolic debt creation.

The Federal Reserve and central banks around the world are cutting interest rate against a decelerating base of growth.  This is promoting the creation of significant new capacity.  That new capacity can only be sustained by even greater cuts and deficit spending plus central bank asset buying.  Further, the asset bubbles and inflation of these policies absent wage growth appear to be further decelerating family formation.  This is creating a Federal Reserve driven downward spiral as it is the young that drive growth.  The chart below shows US income and spending by age of head of household...45-54yr/olds make and spend twice as much as those under 25 or those over 75yrs/old.  This is likely even more pronounced globally.

Global Births (Excluding Africa) Continue Declining
Buried deep in the back pages of the internet, stories and details of collapsing births are ripe.  Some examples:
  • Birth Rates Hits 10-Year Low in Russia (HERE)
  • S. Korea's Demographic Time Bomb Ticking Faster Than Thought (HERE)
  • Termination of China's One Child Policy...Much Ado About Next to Nothing (HERE)
  • Brazil 2016 Births Fall, Now Just 2/3rds of Early 1980's Peak (HERE)
  • US Birthrates at Record Lows, Total Births 8% Below 1950's Peak (HERE)
The global childbearing population growth (red line in chart below, excluding Africa) is ending but the number of births per five year periods (blue columns, excluding Africa) has been declining for decades.  Total births peaked in about 1988 and have been declining since despite the still growing childbearing population.

However, the childbearing population peak (x-Africa) will take place in 2030, and indefinite decline from there combined with already negative birthrates could send births reeling significantly more than the UN's medium variant (charted below).

Depopulation Ground Zero...East Asia
East Asia is China (+ HK, Macau, Taiwan), Japan, N/S Korea, and Mongolia.  Total births here have nearly fallen in half, consistently declining since peaking in the 1965-70 period.  But since 2005, the depopulation loop is in high gear as the shrinking childbearing cohort and negative birth rates combine among nations with net emigration.  The childbearing population is now shrinking fast, already down 120 million or about 15% fewer persons of childbearing age.  By 2035, this population will be about 215 million smaller, a 27% reduction of those capable of reproduction and births nearing a 2/3rds decline.

As for Europe, births peaked even earlier than E. Asia, falling since the late 1960's and the childbearing population began declining by the early 1990's but net immigration has slowed the depopulation loop.

As for the combined US, Canada, Australia, and New Zealand childbearing population and births...never have births equaled the peak seen in the late 1950's despite the near doubling of the childbearing population.  Even high rates of immigration have not resulted in a net rising quantity of births.
The global economy is set to continue increasing its capacity to produce more and produce it more efficiently.  However, excluding Africa, the populations capable of childbirth and their offspring are set to accelerate their declines...and resultant global consumption hopelessly overmatched versus the significant overcapacity being created.  Significant depopulation of young populations is a given while elderly populations continue exploding.  Only through this lens can one understand the true problems facing an economic system premised on infinite growth.  We are at the end of an epoch and the hopefully the beginning of another...the confusion in the interim and messy attempts to sustain the old system shouldn't be surprising, although these attempts haven't a chance to succeed.

For those interested, you are welcome to also consider:
How Did America Go Bankrupt? Slowly, At First, Then All At Once!!!

Who Will Buy Those Trillions of US Treasurys???

The Faster America "Grows", The Faster America Goes Bust

The Federal Reserve and Trump Intent on "Squeezing Blood from a Turnip"...Or Why Most Americans Are in a No Win Scenario

Economic Recovery - But for Whom?

Extra Credit:

India turned the corner to a declining number of births over 15 years ago and continues tumbling.  India which has seen it's fertility rate tumble from nearly 5 to a 2.3 rate in 2017 (2.1 is zero growth)...the same India where all the population growth is happening in the poorest Northern regions with incomes in line with Sub Saharan Africa (among people who don't migrate elsewhere for cultural and religious reasons) while some relatively wealthier Southern regions have fertility rates even below that of China and Japan.