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Demographics and Major Financial and Economic Trends

September 20, 2015

Demographics and Major Financial and Economic Trends

Demographics Driving Declines in Oil Consumption, Mounting Debt, & Central Bank Mismanagement

Sometimes, the simplest answer really is best.  I contend the primary and simplest factor that need be watched to gauge present and future economic activity are the changes in core populations (15-64 year old segment of the larger population) for any nation or grouping.

The core’s declining growth and outright shrinkage appear to be the trigger for declining oil consumption*. In turn, this slowing activity drives central bank reactionary interest rate  cuts intended to incentivize credit creation and leverage…all to get more (raise consumption) from less (a declining population set).

*Oil is generally irreplaceable by other sources and offers a good barometer of a nation’s general economic activity. 

peoplePhoto credit: fmh

The chart below highlights the Bank of Japan’s (BOJ) interest rate reactions to the changing demographic nature of the Japanese population.  As Japan’s core population began declining, the BOJ pushed rates lower to incentivize more credit (consumption) from a declining number of consumers.

 

Chart-1, Japan core vs OldJapan’s core population vs. BoJ interest rates

And the Fed, faced with similar though less dire US demographic circumstances, emulated the BOJ’s actions despite the BOJ’s utter lack of success (below).

Chart-2-rates and federal debtUS interest rates, federal debt and core population trend – click to enlarge.

Central banks around the world, at best, are blinded by their formulas and hubris to the inevitable and certain demographic and population headwinds now very much upon us.  These central banks are reacting to the least surprising, most reliable, and most important data in existence.  Central banks, entrusted with economic stewardship of nations, have acted out of greed or the stupidity only academics can talk themselves into.

They have sailed downwind with all sheets available to make the good times fantastically better, but left nothing for the entirely predictable changing conditions we now face…negative demographics and population trends coupled with exhausted interest rate policy, over-indebtedness, and massive overcapacity for declining core populations.

 

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