The Federal Reserve and Trump Intent on “Squeezing Blood from a Turnip”…Or Why Most Americans Are in a No Win Scenario, by Chris Hamilton

Economica has some great charts. This batch shows that America’s debt is climbing relative to its ability to service it. From Chris Hamilton at economica.blogspot.com:

According to conventional economic wisdom, growth is the increase in the capacity and production of goods and services, compared from one period to another.  This view deems that the greater the growth in capacity and utilization of that capacity, the greater the economic growth.  Strangely, what this school of thought fails to account for is the basis of the US consumer economy…the quantity of growth among the US population (aka, consumers)?  Or how a population growing ever more slowly can consume a capacity that (thanks primarily to innovation, technology, and ever cheaper and greater debt) is allowing for ever greater production?

The chart below shows three variables from 1790 to present;

  1. Columns are US debt to GDP
  2. Black line is annual total US population growth (%)
  3. Yellow line is annual under 65yr/old US population growth (%)
Given the US is a nation of immigrants, the US has had a naturally high rate of population growth due to this net inflow of immigrants.  However, annual population growth has consistently decelerated from an annual growth rate of 3.1% in 1790 to just 0.6% in 2017 (an 80% deceleration, with all growth now dependent on immigration).  The substitution of more and cheaper debt (likewise corporately and personally) to maintain an unnaturally high rate of economic growth while population growth decelerated is plain.  Also noteworthy is the abandonment of the Bretton Woods agreement in 1971 and the simultaneous shift from net exporter to net importer at progressively higher levels.  ***BTW, the sharp waterfall in population growth in 1918 was tied to the global H1N1 influenza pandemic.
However, gauging potential growth by the under 65yr/old population (yellow line in above chart), the organic basis of growth has nearly ceased (a 95% deceleration).  Why is the lack of under 65yr/old growth important?  Only this population is capable of child birth, this population makes up 90%+ of the work force, and this population (at its peak in earnings from 45 to 55yrs/old) earns and spends double the average 75+yr/old.  It is the under 65 population that utilizes credit while 65+yr/olds are credit averse (for good reason).  This is the segment that traditionally drives the economy but is now absent…and ever more and cheaper debt is the sad substitute.
Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s