“Demography is destiny.”
–Aguste Compte
December 18, 2024— In the first edition of Financial Reckoning Day, we included a chapter called The Hard Math of Demography.
Studying global demographics is a bit like watching a portly relative succumbing to a turkey coma while lying on the couch during the holidays watching two losing teams playing football. You know the outcome; he’s going to fall asleep, but the intermittent action of the game makes drag out.
We like demographic trends ‘cause they give us a 30,000-foot view as to a potential Grey Swan economic event. For instance, we can see, in real-time, what a low birthrate has done for Japan.
Their economy saw deflationary stagnation for decades. Rising productivity from manufacturing automation has only recently awoken Japan from its funk.
China’s one-child policy resulted in a surge of men in the population. That surge, currently near its peak military-age years, suggests that if China has any territorial ambitions, including the seizure of Taiwan, the window to best make that move is closing over the next few years.
Arab nationalism, terrorism and mass migrations from poorer nations to the West are largely factors of much younger demographics overwhelming the productive capacity and political systems of post-colonial countries in the Middle East, Africa and South America.
Birthrates are starting to slow in Western nations, as Grey Swan contributor John Robb details today.
That’s a huge problem.
Western nations have built pension and welfare programs that only work for an ever-rising population. Social Security is famously a pay-as-you-go system, not a private account where the government responsibly invests for you during your working years.
As population growth fades and the total global population peaks in the coming decades, the world will need to rethink many of its government programs.
Ideally, the changes need to start now, and they will likely follow Argentina’s “take a chainsaw to it” approach to stave off a bigger, debt-fueled crisis. In the meantime, here’s John. ~ Enjoy, Addison
The Fertility Jackpot
John Robb, Global Guerillas
Human fertility is collapsing. It’s a tangible collapse. You can see its impact in your personal life — on your kids, extended family, neighbors, and co-workers — and if you dig into the news flow, you can see its impact on the world.
Yet, except for an occasional outburst from Musk, nobody is focused on it. I suspect the reason this collapse isn’t the most critical issue of our time is that we wrongly assume it’s:
- a temporary problem.
- only a problem for wealthy countries.
- solvable with the right mix of policies and cultural tweaks.
However, since the collapse isn’t going away and its effects continuously accumulate, we’ll eventually need to face it. So, let’s get started.
The population of humanity has grown continuously over the last 76,000 years since the evolutionary bottleneck caused by the eruption of the Toba supervolcano. Nothing has delayed it for long: not bloody empires (the Mongols killed 5-10% of the world’s population), not plagues (the Black Death caused 10-15%*), and not world wars (WW2 caused 2-3%, including 17m in concentration camps).
This growth has been relentless… until now.
- After nearly a hundred years of decline, the global fertility rate is falling below replacement levels (2.1 children per woman) for the first time in history. This collapse isn’t limited to specific countries or a development level. Due to globalization it’s happening everywhere — from Mexico (~1.6) to Colombia (~1.3) to Turkey (~1.45) to Tunisia (~1.55).
- For decades, increasing global life expectancy has masked fertility declines in population statistics. That’s ending. Most of the easy global gains in life expectancy are behind us. Soon, global populations will rapidly experience rates of decline in the double digits.
- Based on early indicators (South Korea’s current fertility rate of 0.68), decades of reality exceeding expert projections, and the emergence of new pressures on fertility, the global fertility rate will fall much faster and stabilize far lower than anticipated. ~ John Robb, Global Guerillas
Regards,
Addison Wiggin,
Grey Swan
P.S. Today, the Federal Reserve meets. The central bank is widely expected to cut interest rates again, lowering a full percentage point from their peak.
Markets are likely to head into their seasonal Santa Claus rally mode following this meeting, the final big piece of economic data for 2024.
But if Jerome Powell dons a Grinch costume and talks about how interest rate cuts may slow in 2025, markets may end the year on a more sour note.
We suspect that today’s debt levels are simply too much for the economy to support at a 5% interest rate level for too long. At the 4% level, there’s some wiggle room, but not much. Exploding deficits and high interest rates are simply too volatile a mix. That’s why rates will likely trend lower, even if at a slower pace.
While Powell continues to trend cautiously, juggling the Fed’s conflicting “dual mandate” of low inflation and low unemployment, we may see some positive traction with Scott Bessent, who Donald Trump is tapping for Treasury Secretary.
He warned that the U.S. debt is a “mountain” and wants to tackle the problem, not “manage” it as so many in the Treasury Department and Fed have done before.
P.P.S. Against this backdrop, Mike Johnson (R. LA) has negotiated another stopgap spending bill in Washington.
The bill is 1,500 pages long. To which Sen. Rick Scott from Florida commented: “1,500+ pages, billions in reckless and unpaid spending, new bills that we have no time to review and wouldn’t have passed otherwise—business as usual in Washington!” said Sen. Rick Scott (R–Fla.) on X last night.
“The spending deal includes a number of benefits for lawmakers themselves,” observed Reaon’s Christian Britschgi It lifts a pay freeze that’s been in place since 2009 and allows elected officials to opt out of having to buy health insurance on Obamacare exchanges, reports Punchbowl News.
Rep. Jared Golden (D–Maine) has said he’ll vote “no” on the spending deal so long as congressional pay increases are in the bill.
P.P.P.S. Britschgi also notes the bill extends funding for The Global Engagement Center for another year. C.B.:
“The GEC was one of two State Department–backed entities (the other being the nominally private, almost entirely government-funded National Endowment for Democracy) that had given taxpayer dollars to the U.K.-based Global Disinformation Index (GDI).
“The center’s congressional authorization was supposed to sunset next year, and the State Department had already initiated plans to transfer its resources and staff to other bureaus. Should Congress’ spending deal pass as written, the center will have another year to fund the disinformation industrial complex.
Please send your comments, reactions, opprobrium, vitriol and praise to: addison@greyswanfraternity.com
