Posted by on October 25, 2017 3:24 pm
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Categories: Business Demography Economy Economy of the United States ETC federal reserve Fertility Financial crisis of 2007–2008 Great Recession Human overpopulation Income inequality in the United States Population rates Ray Dalio Real estate recovery Social Issues Total fertility rate United Nations US Federal Reserve Wilshire 5000 World

Authored by Chris Hamilton via Econimica blog,

How to judge the effectiveness of the economic recovery since 2008 is a challenge?

Many laud the Federal Reserve for it’s actions to stave off a possible depression.  The Federal Reserve’s policies have certainly helped to promote new record highs in financial assets across the spectrum.  These policies have resulted in a great rise in household net worth yet has created the fewest net new full time jobs and real income increases since WWII.  The chart below shows the household net worth (the combined valuation of all privately held stock, real estate, bonds, etc.) as a percentage of disposable income (what is left after paying taxes) and calls out the decelerating full time job creation.

But as Ray Dalio noted yesterday HERE, the recovery is only a recovery for the wealthy.  As the chart below from the Fed’s own Survey of Consumer Finances shows, all the record growth in household net worth has gone to the top 20% of income earners since 2007 while the remainder have seen declining net worth.

A means to detail the impact of this lopsided recovery is the record low US fertility rate.  During each of the previous run-ups in HHNW, there was a parallel rise in the fertility rate as young adults felt more confident and capable of forming or growing a family.  However, since 2007, the collapsing US fertility rate vs. surging HHNW puts the truth of who is recovering in stark contrast.

And below, the US fertility rate vs. all publicly traded US equities represented by the Wilshire 5000.  Clearly, the recovery was not a recovery for those of childbearing age but in fact an ongoing depression.

The Federal Reserve is protecting, enabling, and rewarding a shrinking number simply for being asset holders (not for doing anything with those assets) while punishing the growing majority for having few or no assets… and ensuring the vast majority never will be asset owners as asset prices surge versus stagnant wages. 

This is all because a flawed economic model premised on perpetual population growth (turning into consumer growth) has now gone off the tracks as growth of the consumer class is collapsing.

The chart below shows annual yoy US 15+yr/old population growth broken down by age groups.  Dark green is growth in 15-24yr/olds, aqua blue 25-54yr/olds, yellow 55-64yr/olds, and red is the growth in 65+yr/olds.  The deceleration of growth among the 15-54yr/old segment from the late 1980’s until growth ceased in 2007 should be pretty obvious.  However, both the quantity and quality of population growth, particularly among the 55-64yr/old cadre (in yellow) is thinning out…this is leaving all population growth coming among the 65+ and 75+yr/old segments.  Periodic spikes in chart are “one time” Census adjustments, not true population growth spikes.

The portion of the population growing is so important because average income and spending peak as the head of the household hits 45-54yrs/old and begins to really decelerate once the head of household hits 65yrs/old.  By the time the head reaches 75yr/olds, their average income and spending are halved and their willingness to use credit to amplify their consumption collapses (chart below).

Below, a close-up of the US 15+yr/old annual yoy population change since 2001.  Take a close look at the dynamics that led up to and culminated in the 2008 “great financial crisis” (first dashed circle).  Compare that to the dynamics since ’08 really intensifying now in 2017.  I’m pretty sure the farce that is the present moon shot in asset prices (with central bank thumbs, elbows, and who knows what else on the scale) has aserything to do with this.

Lastly, the collapse of the 20-65yr/old population growth across N. America (US/Canada) is only accelerating and most if not all population growth will be among the 65+yr/old population (data from US Census and UN).

While presidents and political parties have swept in and out of “power”, the Fed hasn’t changed a bit for decades and is protecting the wealthiest 20% of families (though really it’s more like the top 1% to 2% truly raking in the benefits) and punishing the other 80% holding minimal or no assets. 

And America’s aging population will not allow America to grow her way out of this hole. 

Only an outright, “revolutionary” change from the current paradigms and removal of “powers that be” will save the bottom 80% from watching the American dream race ever further away.  But of course, better make sure any “new boss” isn’t the same or even worse than the “old boss”.

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