(by Chris Hamilton)-
WWII is still reshaping our economic reality. The massive global loss of life in WWII and its birth dearth during the war created a demographic hole (unusually high death / unusually low births over a 5 to 10 year period). The subsequent baby booms in the US and globally in Japan, Europe, and so many more locations which were affected by the war created a “pig in the python” moment. This unusually large wave of population growth from ’45-’55 was “pent up demand” from the war. Those of family rearing age who waited, those who remarried, and those who fretted…they rushed to make up for lost time over the decade after the wars conclusion. But the subsequent generations were in no such rush and in fact began an ongoing process of slowing the creation of families and children.
But society and its leaders assumed this baby boom anomaly to be the new reality. They built an entire economic system on the one decade anomaly. But that wasn’t enough. They had to layer the anomaly with the unsustainable and the previously immoral levels of usury (renamed and rebranded as leverage, credit) and economic policies only effective as the passing of the pig was imminent. The baby boom group or entity spanning 10 years will in 2015 turn a collective 60-70yrs old. The “pig is passing” from the American and global workforce into retirement and now the wreckage and folly of such basic misnomers has come home to roost…and will get far worse. Central bank and government actions to create the problems and subsequent responses should be seen for what they are…entirely self-serving and ineffective.
A global multi-variate tipping point was reached in 2007 – too many older boomers leaving the system and too few to replace them. This all put too many requests on that system…too many boomers continuing to work for low, part time wages rather than making way for the following generations. Too many unsustainable layers with inadequate support collapsing in on the system below. In 2007 the total population of 25-54 year olds and total employed within the 25-54 year olds peaked. The total US population of 25-54 year olds has fallen 1 million since, 25-54 year old employees have fallen nearly 4 million, while the 55+ cadre has ramped by almost 8 million.
The impact is likely even stronger in Japan, Europe, and other locals upon which the war was waged. The loss of life higher, the birth dearth higher, the subsequent baby boom larger…and the current adjustments even more difficult.
Nearly 70 years later and WWII’s primary participant nations are now aging rapidly and have taken on great debt to serve the aging populations. And these only show the formal on the books debt to GDP but nations like the US have up to 5x’s the formally recognized debt…which from a growth perspective is akin to trying to perform an open water swim with an anchor around your neck…of course the young, unindebted nations like Saudi Arabia or Indonesia with 5% of its population 65 and above and a modest debt to GDP are far likelier to grow rapidly.
A note on the charts…please know the following charts are not simple – they are attempting to show multiple variables and their relationships and impacts on one another. However, if you commit to take the time to read the entire chart I believe you can be rewarded with the true causes of our economic maladies.
Global Demographics and Debt
The chart below shows the formal debt to GDP of the top 20 some economies compared with the % of their populations 65 years and older. These nations to the left of the graph are substituting debt for falling demand…but their populations are rapidly aging and this makes them incapable of the growth rates that would be necessary to pay down debt or even service debt at “market” rates. Instead, governments and central banks are keeping the monetary pedal to the metal to maintain “normalcy” and avoid the ultimately unavoidable adjustments.
US Demographic focus
In the below graph, the boomers progression through the US economy is so unmistakable. The peak of each age grouping is easily seen as the boomers moved through their life span. And the population nor employees within these groupings has never regained boomer peaks and very likely never will (not within our lifetimes).
And below is a view of the boomers departing the prime years of their careers and moving entirely into the 55+ set. The 25-54 year old population and total employed 25-54 year old population peaking is not coincidental with the economic meltdown of ’08-‘09. This was the result of Boomers aging and switching from accumulation to distribution of assets…but Boomers also continued working to make ends meet…and the generation behind is simply incapable (qualitatively ($’s) or quantitatively (total #’s)) in a position to support the boomers. The great recession and subsequent non-recovery is a battle with an unbeatable foe…the boomers transition to distribution, their exit from the work force, their drawdown of their assets, and their collection of underfunded pensions and unfunded social services.
But the boomer generation is working longer (primarily in part time positions) and nearly all job growth since ’07 has been 55+ and 65+ boomers attempting to augment savings and prolong work related benefits. The 55+ set is far more experienced and far less concerned with maximum wages…and this is coming almost entirely at the expense of the 25-54 year old set.
The chart below shows the size of the US 25-54 year old population and total jobs in this group over time…this group (which is responsible for driving the US economy) peaked in total population in ’07 and has fallen since…and jobs within this group also peaked but have fallen about 4x’s more than the groups population decline. The peak and fall of this group in the US and likewise globally, particularly in advanced economies, soon sent the markets into a tailspin. And the governments have made up for the falling demand by taking on debt…lots of debt. This crisis (aka, the Baby Boom retirement) was entirely predicted and foretold. But for some reason the subsequent birth dearth and it’s economic impacts in the US and globally are not being discussed and rather the Fed speaks of insufficient demand being overcome by simply offering more and cheaper debt??? As you consider the US charts, remember these same issues impacting the US are not just domestic but very global and feeding on one another in global lockstep.
The chart below shows US working age population of 25-54 yr/old employee’s peak in ’07 and the surging 65+ year old population…with no surge in the 0-25 year/old population (ie, those meant to eventually pay the tax bills and buy the boomers assets). Going forward, the 0-25 years old population is likely to remain flat’ish while numbers of boomers moving into 65+ retirement zone will ramp by 10 million’ish (exacerbating all their switch from accumulation to distribution, their claim on social services, and assets to be sold). If you are starting to get the idea the Fed’s actions are to plug a demographic hole with monetary policy…good for you as you are 1 in a million in America who get it.
The chart below is the same as above but narrows in on ’00 to present…and shows how ludicrous the Government and Federal Reserve monetary response is to a demographic problem. One look at the flat lining young American population of 0-25 year olds vs. ramping 65+ year olds and it should be clear America’s population isn’t really growing…rather the boomer “pig through the python” which began with huge numbers is now retiring in huge numbers and will eventually pass away in huge numbers…and then the total US population flat lines or even begins falling. The debt being created hasn’t a chance to be repaid or even serviced (ever) at “market” rates.
The chart below shows the impact of the peaking 25-54 year old segment in ’07…mortgage debt and oil consumption (also total miles driven, not shown) also peak in ’07 / ’08 and fall since. And governments and the Fed’s response to the most predictable crisis ever was to pour gasoline (debt) on the fire and pretend this is business as usual.
Now, two squiggly lines and a little divergence makes all the difference (below). Note from ’52 ‘til ‘00, US population and jobs growth are in-line with one another…but as population growth continues slowing job creation slows far more dramatically. From ’07 to ’14, only 17 jobs were created for every 100 new participants in the economy (net, all gains were due to part time job growth)…this is down from 66 jobs for every new participant (citizens) from ’50 to ’00 (and most these earlier gains were full time positions).
Population growth vs. Job creation (net):
’52-’00 Population +125m — Jobs +83m = 66%
’00-’07 Population +20m — Jobs +20m = 30%
’07-’14 Population +17.4m — Jobs +2.9m = 17%
One last note regarding the chart above…Notice the slow incline of federal tax receipts relative to far more rapid rise in federal debts. Federal tax receipts to debt slide from a 1 to 4 1950 ratio to 1 to 9 ratio presently.
But Federal Treasury debt ($18 trillion) is only a fraction of the real US debts and liabilities. A better calculation of total US debt is far higher (below chart). The chart below is the full accounting for US federal debt and obligations based on the net present value of monies that should currently be held in interest bearing accounts to augment future payouts (making up for anticipated future tax shortfalls). These are obligations that did not exist or were funded prior to the implementation of the Unified Budget accounting under Johnson’s administration. These are government numbers and are likely far too conservative (please note all numbers are updated to Q2 2014 except the total debt which is only available up to 2012 at $88.5 trillion…the Q2 2014 $98 trillion is my best estimate).
The chart below shows why the debt is such a problem…look at the growth in total debt / obligation vs. federal tax receipts. $2 trillion in federal tax receipts could not sustainably pay for $98 trillion in total debt and obligations…not in any organic manner. It’s obvious why the Fed and central banks are doing everything in their power to disguise the simple fact the US, Japan, and many more nations have gone bankrupt. QE, TARP, LTRO, Abe’s Arrows, and so many more central banking and federal government programs are all papering over a simple reality that the debts, by and large, cannot be repaid.
The chart below shows both the collapsing quantity but also quality of job creation over two equal time periods, ’99-’06 and ’07-‘14. All growth since ’07 is part time jobs, total population, and a massive increase in “not in labor” force category?!? Full time jobs and manufacturing positions are rapidly shed from ’07 to ’14.
The chart below shows how ridiculous the asset values are vs. falling quantity and quality of jobs. Central Banks have been quite active replacing missing employee and wage growth with acronyms short for monetization.
Since ’08, the 55+ set did not head for the golf course but instead many kept on working (likely due to underfunded retirements, longer lifespans, and rising costs of living)…but the group in the prime of their family formation years, 35-54 years old, saw big job losses coupled with falling household incomes. How these 35-54 year olds will support the 55+ boomers in retirement, buy boomer homes and stocks as they downsize and sell off assets in retirement should be front page news. The growth is in part time, 55+ employees and total population. 25-54yr/old employees and Full Time jobs are falling.
Chart below shows the changing makeup of the US population…OLD and about to get much OLDER!!! That large build up in the 25-54 year old group will soon shift over into the 65+ year old category…and be supported by progressively fewer 25-54 year olds.
Jobs – Private vs. Government
Lastly, this one surprised me some…but government job growth has not been the demon I had heard about…likely still more government jobs than necessary but the total number of government jobs is declining and has shown no growth in the last decade. Good or bad, this slowdown of government jobs is also partly responsible for the falling number of full time jobs and falling median household income as private industry is net-net creating part time jobs rather than full time.
And finally, growth in government jobs has been slowing for 5 decades and is now negative; all job growth this decade is due to private sector job growth. Please note that big hole in job creation from ’00-’10…all job growth since ’10 is merely keeping pace with the larger US population but not making any headway in resolving the massive job dearth of ’00-’10. And an astute chart reader would also note that a larger total population is creating less population growth…and this declining rate of population growth is accelerating as we progress through this decade.
This article was written by Chris Hamilton. You can find more of his work at CharlesBiderman.com.