For the past 15 years, since the Global Financial Crisis, central banks have claimed they could generate demand and economic growth via stimulus. Some $73tn of spending later, it is finally becoming clear to some of them, at least, that they can’t.
Now, we all have to start picking up the pieces of the problems they have created.
European Central Bank President, Christine Lagarde, recognised the issue in August last year:
“We have to pay attention to traditional indicators while also monitoring empirical data and what we expect to happen in terms of geopolitics, energy price developments and demographics.”
Unfortunately, as the Wall Street Journal warned earlier this year, the central banks have been rather slow to recognise the obvious:
“You can’t run the most reckless monetary and fiscal experiment in history without the bill eventually coming due.”
The chart highlights the key issue:
- High-income countries are 62% of global GDP, with just 16% of population
- They have now gone ex-growth in terms of population growth at 1.3bn people
- The percentage of Perennials 55+ in their populations has already doubled versus 1950
- And now the Perennials are the main growth cohort in their populations
The Perennials are lovely people, but they are a replacement economy. They already own most of what they need. They are no longer having children. And their incomes decline as they retire.
Consumption is 60%-70% of GDP in the Most Developed economies. And the chart highlights how spending declines as people pass the age of 55:
- It shows US data, which is very similar to Japan, Germany and the other major economies
- In 2000, there were 65m Wealth Creator 25-54 households, each spending an average of $69k
- In 2022, there were 66m Wealth Creator households, each spending an average of $82k ($2022)
- In other words, there was no growth in the number of Wealth Creators, but their spending (supported by furlough payments) did increase in real terms
But look at what has happened to the Perennial households:
- Their numbers have increased by 2/3rds since 2000 to 61m – nearly as many as the Wealth Creators
- But their spending is 20% less at only $66k
- And, of course, the trend of spend is declining as more and more Perennials reach retirement
The issue is simply that the Western BabyBoomers, born between 1946-70, were the largest and wealthiest generation that has ever lived. They powered a SuperCycle from the mid-1980s onwards as they all joined the Wealth Creator cohort.
And the good news for them is that their life expectancy has now increased well beyond pension age.
As the chart shows, there has been a remarkable increase since 1796. That was when a country doctor in England invented smallpox vaccination – to combat the great killer of the time.
As noted here last year, on the 225th anniversary of his historic achievement:
“Life then for ordinary people was mostly still “solitary, nasty, brutish and short”, with just three stages:
- A child would be born, often killing its mother in the process
- If it survived early childhood, the child would then work until it died
- Average life expectancy was just 36 years in the West and only 24 years everywhere else”
Since then, life expectancy has soared. And at the same time, fertility rates have collapsed in the Western economies to well below replacement levels – 2.1 babies/woman.
We don’t often use the word “impossible” in the newsletter. But in this case, it is clearly impossible for GDP to continue to grow as it did during the BabyBoomer SuperCycle in the major Western economies.
Next week, we will look at the situation in the major Middle Income economies – China, India and others. Can they now compensate for the decline in the West?