In the land of the blind (economics), the one eyed man is king. So, forget everything you know (or don’t know) about economics and follow some very simple math that economists (and financiers, Fed chiefs, and administration after administration) are unwilling to publicly acknowledge. Disregard theories about ever greater production equating to economic growth…all that truly matters is the ability to consume that production (otherwise production turns into excess inventories).
Simply put, every person on earth is a unit of consumption multiplied by their income, savings, and access to and/or utilization of credit (even if it is government provided via social programs). Thus, it is the annual change in the population (multiplied by these levers) which is the primary driver for the annual change in consumption. But population growth among the nations with the income, savings, and access to credit has fallen in half since peaking decades ago…and growth among the all important work force is facing imminent and ongoing decline.
Thus to maintain consumptive growth, a series of stop-gap steps have been undertaken, each more drastic than the last. First, unfunded governmental social programs alongside interest rate cuts were used to entice higher consumption absent higher income or savings. Once this broke down, governments and central banks took over debt creation and asset eradication in an attempt to maintain still higher consumption without the concomitant rise in income/savings.
However, these policies and actions to maintain consumptive growth (enabling higher production) are about to become far more difficult if not impossible. The lack of population growth among the consumer nations coupled with the negative distribution of that growth (almost solely among the elderly) is set to slow growth to a crawl or cause outright declines. Why?
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In five months of fiscal year 2018 (through Feb 28), the Treasury has already issued $630 billion in new debt. The Treasury is on pace to issue $1.2+ trillion in new debt (2017 was a mere $672 billion increase). But let’s be conservative and assume the Treasury reins it in and “only” issues another $370 billion over the next seven months…for a nice round $1 trillion in new debt. Big numbers are hard to comprehend, so I’ll show just the added responsibility from the debt undertaken in 2018, per every full time employee in the US (there are 127 million FT US employees):
The impact of $800+ billion of pure monetization from late 2014 through year end 2016 was spectacular. In the hands of the largest banks (multiplied by “conservative” leverage somewhere between 5 to 10x’s) easily amounting to trillions in new cash looking for assets. A “bull market” beyond belief should not have been surprising.
