Popular Myths and a Shrinking Work Force

It’s not just voters who buy into popular myths. Many investors do too. Few have wider appeal than the myth that central banks can create economic growth via the printing press.

What central bankers and their supporters seem to forget is that growth comes from living, breathing human beings.

It often sounds a lot more complicated than it really is. But genuine economic growth comes from two things: the number of workers in the labor force and the productivity of those workers.

 

1124-MI-blog

 

That’s a problem for the US. Because according to a recent report in The Economist, its potential labor force is set to grow at less than one-third the 0.9% rate we saw between 2003 and 2013.

Making things worse, many of America’s boomers – the first of whom qualified for Social Security in 2008 – are opting out of the labor force. Instead of looking for jobs, they are choosing to live on benefits.

This helps explain why the percentage of working-age adults looking for jobs in the US has fallen to below 63% from about 66% when the global financial crisis struck.

And it’s not just Americans who are getting older on average.

 

From The Economist:

 

“[T]he ratio of workers to retirees is now plunging in most developed countries and soon will in many emerging markets. Japan is already liquidating the foreign assets its people acquired during their high-saving years; China and South Korea are starting to do so and Germany will soon.”

 

Fewer workers in the labor force. More retirees to support for those with jobs. Foreign retirees cashing out of their US stocks and bonds. Janet Yellen et al. better hope investors are gullible enough to believe the magic of QE can continue to levitate financial assets forever.

Otherwise, stock and bond investors will start to reconsider the prices they’re willing to pay to own their pieces of paper.

 

workers per retireePast and projected workers per retiree of selected countries – via macrobusiness.com.au.

 

 

Chris Hunter is Editorial Director at Bonner & Partners

 

 

 

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4 Responses to “Can QE Prop Up Asset Prices Forever?”

  • Mirk:

    the article does not answer the question if “QE will prob up asset prices forever”. If it is the question if it can prob up the sad answer is “yes it can”. You just have to look into the 1980 to 2000 where IWF and central bank made one monetary stimuly after the other. This time it is much bigger and it will go up even more.

    If the answer is “can it add value or make the world better” the answer is no.

  • kopavi:

    You write: “It’s not just voters who buy into popular myths. Many investors do too. Few have wider appeal than the myth that central banks can create economic growth via the printing press.

    What central bankers and their supporters seem to forget is that growth comes from living, breathing human beings.”

    True enough but investors of late aren’t all that worried about economic growth as they are in price action of the various indexes. On Wednesday last, we had 7 bad numbers yet markets all closed up. Investors are only thinking of markets going up and as long as we have the Fed talking sweet with threats of QE4 (or Draghi joining the QE club) along with ZIRP forever, investors feel covered.

    I agree that growth comes from living, breathing human beings. Alas, with something around 70+% of all stock transactions performed by HFTing, with positions held for on average about 11 seconds, the direct actions of human beings on market action is minimal. The economy is tanking but we are seeing daily all time highs with the indexes. I don’t see that changing until bond rates going up. I don’t see the rates going up without a sea change in the Fed or the administration and congress. Don’t hold your breath for that to happen any time soon.

    The economy is not the stock market, but the folks pulling the strings don’t give a rat’s butt about the economy as long as market action is making them buck$.

    • jimmyjames:

      On Wednesday last, we had 7 bad numbers yet markets all closed up. Investors are only thinking of markets going up and as long as we have the Fed talking sweet with threats of QE4 (or Draghi joining the QE club) along with ZIRP forever, investors feel covered.

      ***********
      Have to agree kopavi .. this thing looks like it has the makings of a runaway bull market .. good luck trying to find the top ..
      I have a badly bitten ass from trying to short this zombie ..

    • RedQueenRace:

      “Alas, with something around 70+% of all stock transactions performed by HFTing, with positions held for on average about 11 seconds, the direct actions of human beings on market action is minimal.”

      Given that these positions are held for an average of 11 seconds and involve both a purchase and a sale I don’t see how one can believe it is the dominant driver of prices.

      Markets have behaved like this long before HFT came around.

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