By John Richardson
THE above infographic explains the end of the economic Supercycle:
•During the 1980s/1990s, the BabyBoomers – the largest and wealthiest generation that the world has ever seen – entered the Wealth Creator generation (those aged 25 – 54), when income and spending peak
•They powered the SuperCycle.
•The world’s largest economy, the US, suffered just 18 months of recession in 25 years between 1983 – 2007.
•The demand surge created the phenomenon of globalisation, integrating Eastern Europe, then China and India, into the global economy.
•It peaked between 1995 – 2000, when all the BabyBoomers (born 1946-70) were in the Wealth Creator generation.
But then the oldest Boomers began to join the New Old generation of those aged 55+. In the past, they would have died very quickly, as life expectancy, even just a century ago, was only 46 years in the West, and 26 years in emerging economies.
But major advances in healthcare, food/water safety and personal lifestyles mean that the average 65-year old can instead hope to live another 15 – 20 years.
Demand growth has thus begun to decline. The New Old already own most of what they need, and their incomes decline as they enter retirement.
As I discussed on Wednesday in my open letter to Janet Yellen, policymakers have either entirely missed, or have ignored, this critical demographic shift.
They have instead attempted to create constant growth by boosting financial markets.
First they created the subprime bubble in the USA, and now today’s post-2008 Global Financial Crisis stimulus bubble. This had created $57tn of debt by 2014, nearly the size of the global economy.
Now, though, China has changed course. And because China has been responsible for more than half of the economic stimulus pumped into the global economy since 2008, its withdrawal of stimulus explains the collapse in commodity prices – including of course oil.
What should companies and investors to do? As the infographic below describes, they can do one of two things:
- They can either hope that somehow these new stimulus policies will succeed despite past failure.
- Or they can join the Winners who are now starting to develop new revenue and profit growth by adopting demand-led strategies.