Add It Up... And It Doesn't Add Up

Submitted by Chris Hamilton via Hambone's Stuff blog,

The growth of population has been the primary driver of global demand growth and growth in consumption.  Rising wages have been largely offset by rising prices (inflation), so the primary basis of growth in demand is good old growth in population...and the deceleration in population growth should be very worrying for those expecting the next decade or two to look anything like the past seven decades.

The chart below gathers the combined 15-64yr/old annual growth of the 15-64yr/old population of the OECD, China, Brazil, and Russia against the Federal Reserve set Fed Funds Rate (%), global debt, and global GDP.  To be honest, it's a very good fit showing very bad things to come based on the current modus operandi.

But maybe that isn't fair or its simply cherry picking data with a desired result in mind?  So, to be fair, the chart below shows the annual growth of the global adult population (20-64yr/olds) highlighted in yellow.  The deceleration of the global adult population is plain to see and down 25 million (30%) from peak growth in 1988.  

The growth is further broken down by source of that population growth, OECD (34 wealthy 34 nations representing 1.1 billion people, outlined here...OECD), BRICS (Brazil, Russia, India, China, S. Africa...representing 3.1 billion persons), and the RoW (rest of the world...representing 3.2 billion persons).  The collapse of growth in the OECD is well known, but the collapsing growth among BRICS less well understood.

Annual global adult population growth, total and by source, below.  Also important is to understand that the next two decades on these charts (representing the adult population) are not an estimate or forecast...simply taking the count of those already borne and showing their replacement of the persons already there.  Said otherwise, any change in birthrates now (up or down) wouldn't even begin to have impact on the adult population for at least 20 years. 

And below, given the wealth and consumptive capacity of the OECD vs. the BRICS and particularly over the poor RoW...the chart below depicting the population growth multiplied by GDP per capita (all are held constant in $'s).

  • OECD = $40k/yr
  • BRICS = $15k/yr
  • RoW = $8k/yr

The outsized impact of the OECD nations in consumption vs. the relative minor impact of the RoW is highlighted by the growth of population when multiplied by GDP per capita.

Lastly, pulling it all together.  Adding in global GDP, global debt, and the Federal Funds Rate (the de facto global central bank behind the reserve currency).

The annual adult population growth peaked in 1988 but the FFR had already begun it's southward turn in advance of decelerating population growth.  Of course, debt (the substitute of the decelerating population growth) was already responding although global GDP didn't respond nearly as well. 
Continuing deceleration of population growth offset by rate cuts incenting ever greater debt loads (with continually underperforming GDP) was the central banks only play. 
And now as population growth and decelerating demand really begin to wane...the playbook is basically exhausted save for one play...simply print money with which to buy assets and "permanently retire" those assets.  Think Treasury's, think MBS, think equity's...think anything that can be digitally created and digitally destroyed all to perpetually shrink the outstanding float (think perpetual short squeeze).  How long this can maintain asset values northward march in the face of the populations southward divergence is anybody's guess.