Thursday, August 13, 2015

China Bust Is The Last Straw Of the Global Collapse

Since not a single Wall St. or Fed head will speak honestly about the troubles the economies of the world face...apparently it's up to folks without PhD's or titles to spread the gospel of reality...no matter how unpopular it may be.


In short, as population growth slowed, debt and leverage was cranked up to bridge the gap.  However, it was never going to work as population growth wasn't coming back...at least not in our lifetimes.  What was always needed and still needed is an entire economic and financial global reset (aka, bankruptcy and restructure).


Why was this post Bretton Woods model doomed?  Lets use China as the poster child why this economic model of select Keynesian thoughts was and is impossible to sustain itself.


Chinese population growth (below) was bound to peak someday...and turns out (according to likely overly optimistic #'s from the OECD) that day is about 15 years from now (chart below).

In the chart below, note the rising total population (blue columns) but the headwaters of Chinese population growth is the long declining green line representing 0-14yr old population only temporarily being offset by the lengthening of 65+yr/old lifespans (you could show the same for most advanced economies around the world with negative birthrates and greying populations).

Close-up of Chinese young (0-14yr/old total population) over a 65 year period.  From the peak in 1976, the population of Chinese young has fallen by 116 million and is presently 18 million below the number of Chinese young in 1960.
And a good look at the components of China's population growth.

Fast forward to '00 in the below chart...the implications of a long period of declining birth rates is working through the population with declining growth rates and soon outright declines in the 15-64yr/old core population.  Declining numbers of China's core (workers, consumers), increasing numbers of old, and a 14x's increase in debt over a 14 year period...not exactly how sustainable growth was described in economic textbooks.
The Chinese answer to the problem of declining consumers is exactly the same as the West, MORE DEBT!!!
Quick reminder of how similar China's breakdown is to America's in the chart below (and America's breakdown to Japan's.  Demographic breakdowns covered by leverage, debt, and QE all building a bridge to nowhere).

Let's look at this in the real world using China and oil as the viewing lens.


Global consumption of oil increased 14mbpd from '00 to '13 (77-->91mbpd) and BRICS demand was responsible for 2/3rds of that increase.  But, '07 to '13, global consumption rose 4.5mbpd and BRICS were responsible for 4.8mbpd of that increase!!!
China alone was responsible for about 60% of the BRICS increased consumption from '00 and about half of all global consumption gains from '07-->'13.  All it took was a 1,400% credit increase!?!

However, as can be seen in the above chart (or more recent collapsing economic activity in China...or Brazil,  Russia, etc. etc.), the demand increases which were premised on raging credit increases (primarily housing debt) and rising population have both ceased...what happens now?  Unfortunately for those wishing for perpetual growth, there isn't another China waiting in the wings to pick up the slack in demand.


And OECD nations (below) continue the oil consumption declines that began in '06 (again, premised on debt substituted for declining working age populations and consumer bases).

The model is broken and worldwide QE is the last ditch effort to elongate (not fix) the system.  Eventually all governments (East and West) will be buying nearly everything with phony digital money to maintain asset prices but none of the fake money will help the economies of the world or 95% of the people.


Perhaps it's time for to rethink everything.