Demographics Driving Declines in Oil Consumption, Mounting Debt, & Central Bank Mismanagement

Sometimes, the simplest answer really is best.  I contend the primary and simplest factor that need be watched to gauge present and future economic activity are the changes in core populations (15-64 year old segment of the larger population) for any nation or grouping.

The core’s declining growth and outright shrinkage appear to be the trigger for declining oil consumption*. In turn, this slowing activity drives central bank reactionary interest rate  cuts intended to incentivize credit creation and leverage…all to get more (raise consumption) from less (a declining population set).

*Oil is generally irreplaceable by other sources and offers a good barometer of a nation’s general economic activity. 

 peoplePhoto credit: fmh

 

The chart below highlights the Bank of Japan’s (BOJ) interest rate reactions to the changing demographic nature of the Japanese population.  As Japan’s core population began declining, the BOJ pushed rates lower to incentivize more credit (consumption) from a declining number of consumers.

 

Chart-1, Japan core vs OldJapan’s core population vs. BoJ interest rates

 

And the Fed, faced with similar though less dire US demographic circumstances, emulated the BOJ’s actions despite the BOJ’s utter lack of success (below).

 

Chart-2-rates and federal debtUS interest rates, federal debt and core population trend – click to enlarge.

 

Central banks around the world, at best, are blinded by their formulas and hubris to the inevitable and certain demographic and population headwinds now very much upon us.  These central banks are reacting to the least surprising, most reliable, and most important data in existence.  Central banks, entrusted with economic stewardship of nations, have acted out of greed or the stupidity only academics can talk themselves into.

They have sailed downwind with all sheets available to make the good times fantastically better, but left nothing for the entirely predictable changing conditions we now face…negative demographics and population trends coupled with exhausted interest rate policy, over-indebtedness, and massive overcapacity for declining core populations.

This article will focus on various core populations, the associated oil consumption, and debt incursions.  I will also include Purchasing Power Parity (PPP…a calculation of relative capability of consumption per capita based on GDP/population).  PPP will be used to compare the declining wealthy core population’s consumption capacity vs. that of ascending poor and old populations.

*All population data and estimates come from the OECD, oil consumption from EIA (US Energy Information Administration), PPP from the IMF, and debt from various sources.

 

JAPAN – Population 127 million; PPP = $37.4k

Japan’s annual core population growth peaked in 1984 and went outright negative (YoY) in 1996, the same year Japanese oil consumption also peaked and began its ongoing, nearly 20 year decline (a 25% reduction in consumption over those 20 years).  Japan’s public debt load after having been fairly stable for a decade, began its moonshot from approx. 70% in the early ’90’s to today’s 250%…all in an effort to entice a declining consumer base to make up with leverage what they lacked in income growth and sheer quantity.

It should be noted Japan’s total population didn’t peak until 2010 and is down just over 1% since then, while oil consumption has fallen by 25% from its peak.  However, unless Japan undertakes the unlikely step to import population growth, the Japanese core population (which has already fallen nearly 11%) will ultimately fall in excess of 50%.  This is probably good from a sustainability perspective, but catastrophic for the younger Japanese who have to deal with the mountains of debt and government obligations to Japan’s elderly.

Somehow no one ever forced the Bank of Japan to answer how decades of foreseeable population declines (at a minimum) offset only by debt and ZIRP could ever be resolved by fewer people paying off or even servicing far more debt.

 

Chart-3, Japan oil consumption, debt-GDP, populationJapan: total oil consumption, public debt to GDP, core population

 

EU – Population 510 million; PPP = est. $38k

The 27 member European Union saw peak core population growth (YoY) in 1983.  By 2005 the EU hit peak oil consumption and by 2011, the core population began to shrink outright.

 

Chart-4-EU, oil consumption, populationEU: oil consumption and population

 

GERMANY – Population 81 million; PPP = $46k

German peak core population growth (YoY) likely occurred prior to 1980 and by 1998, Germany’s core population began to shrink outright…the same year Germany’s oil consumption peaked and began an 18% fall that has yet to end.  However, Germany was able to avoid the large debt increases of its neighbors due to the advent of the Euro and EU giving Germany an EU-wide, single currency market for its superior export engine.

Germany’s economic well being amid a massive core population shrinkage can only be continued by the maintenance and health of the EU (likely contradictory factors).  Otherwise, Germany’s ongoing massive population declines, if not offset by enormous numbers of immigrants, will cripple its economy, just like happened to Japan

 

Chart-5-Germany, oil consumptionGermany: oil consumption, core population growth

 

Chart-6-Germany, population, oil, debtGermany: core population trend, oil consumption and public debt to GDP ratio

 

FRANCE – Population 66 million, PPP = $40.4k

French oil consumption and core population growth peaked prior to 1980…but most recently French oil consumption peaked in ’01 and began its 15% ongoing fall.  Public debt rose from a modest 58% to today’s 95% of GDP…and worst of all for France, its core population flat-lines from here solely due to ongoing low skill and poorly educated immigrants offsetting the falling native core population.

 

Chart-7-France-Oil ConsumptionFrance: oil consumption, core population growth

 

Chart-8-France-population, oil, debtFrance: core population trend, oil consumption and public debt to GDP ratio

 

SPAIN – Population 47 million; PPP = $33.7k

Spain was a late bubble bloomer with peaking core population growth in 2005 and peak oil consumption in ’07.  The 25% fall in oil consumption in such a short time is likely indicative of the depths of the economic downturn in Spain…reinforced by the rise in Spain’s public debt to GDP ratio from 36% to today’s 98%. Spain faces a significant ongoing core population decline and truly has no hope of outgrowing its problems.

 

Chart-9-Spain-Oil consumptionSpain: oil consumption, core population growth

 

Chart-10-Spain-population, oil, debtSpain: core population trend, oil consumption and public debt to GDP ratio

 

ITALY – Population 60 million; PPP = $35.5k

Italy, like France, likely saw peak oil consumption and peak core population growth prior to 1980.  The most recent peak oil consumption of 1995 and the 35% consumption reduction since then coincides with intermittent periods of core population shrinkage and growth before shrinkage likely finally takes over about 2020.  Italy, like Spain, has leaned on debt to bridge the demand gap (now a chasm) and is beyond any hope to outgrow its gargantuan debt load.

 

Chart-11-Italy-Oil consumptionItaly: oil consumption, core population growth

 

Chart-12-Italy-Population, oil, debtItaly: core population trend, oil consumption and public debt to GDP ratio

 

US – Population 321 million; PPP = $54.6k

In 1998 the core population growth (YoY) in the US peaked at about 2.6m. annually and growth began slowing.  By 2005, oil consumption peaked at 21m. bpd and has fallen 9% since then.  2015 saw core growth down to 800k and by 2025, core growth is estimated to be nearly flat…down about 95% from the peak growth rate of ’98.  However, all US population rebounds or stabilization are dependent on immigration, which is dependent on uncertain US low skill job growth and continued lax immigration policies, among other things.

 

Chart-13-US oil consumption, pop growthUS: oil consumption, core population growth, federal deficit

 

CHINA – Population 1.36 billion; PPP = $12.9k

Economists are shocked, yes shocked, at the slowing economic activity in China.  However, one glance at the chart below explains it quite clearly.  Core population growth turns outright negative in 2016 and debt has been substituted for missing consumer demand growth.  But the housing driven credit bubble has popped and combined with shrinking numbers of core consumers…China likely faces an outright contraction (aka, recession or depression), including declining oil consumption for decades.  China is also likely to turn to the debt creation power of the state to temporarily slow the declines.

 

Chart-14-China-core pop, oil consumption, debtChina: core population change, oil consumption and total debt

 

Chart-15-China-core pop, oil, creditChina: change rate in core population, oil consumption and credit

 

Chart-16-China-annual change ratesChina: annual change rate in core population, oil consumption and total debt

 

INDIA – Poulation 1.25 billion; PPP = $5.9k

Peak core population growth already came and went for India (2005 was the big year) and from now on there will be declining core population growth until about 2050…when core population growth turns to outright annual declines.  If India follows the usual pattern, declining oil consumption and peak consumption are likely to happen this decade….along with a sharp upward turn in credit and debt.  How this will play out as India is facing nothing but global headwinds as it attempts to deal with its  slowing growth is anybody’s guess.  By the way – Brazil, like India, saw peak core population growth in 1999 and its core population will begin declining before 2030.  Everything said about India is true for Brazil as well, only it will happen even sooner.

 

Chart-17-India-population statsIndia: population segments

 

Chart-18-India-core pop growth peakIndia: core population growth peak

 

AFRICA – Population 1.15 billion; PPP = $4.4k

As of 2015 Africa, India, and China represent 52% of earth’s population, however, they represent 65% of global population growth.  Of note, Africa’s present annual population growth is double that of India and quadruple that of China.  Nearly all African net population growth is under 65yrs/old (a trend that will only accelerate) vs. significant portions of Indian and majority portion of Chinese net population growth in the 65+yr/old segment.

Africa’s 5.1 births per female are more than double the global average of 2.7 – led by Uganda’s 7 births per female, where 50% of the population is under 15years old in a nation with an average income of $2000/year and a life expectancy of 51years.  Likewise, Africa’s largest population, Nigeria’s 185 million, is experiencing explosive growth, growing in excess of 5 million annually with 45% of the population under 15 years old in a nation with an average life span of 50 years.  Sub-Saharan Africa is truly the “anti-Japan” where instead of too few young adults to care for the old, there are too few adults to take care of all the young and too little money to feed them all.

 

Chart-19-Africa,India,ChinaAfrica, China, India: 52% of the global population in 2015

 

Chart-20-Africa,India,China, growth ratesAfrica, China, India: annual population growth rates

 

Probably worth contemplating is the relative impact of the ongoing changing source of population growth from higher income to lower income nations…to Africa.  On any given day, Africa includes about 57 countries (give or take a few) that range in PPP (Purchasing Power Parity) from small, well to do nations like Equatorial Guinea at approx. $32k/year, all the way down to population giants like Congo, Burundi, Malawi, Central African Republic, Somalia, Liberia all with PPP’s under a $1000/year.  So, if you put it all together and weight it evenly…the average African income comes out to about $4,423/year.

To put this PPP in perspective, this is less than 2/3rds of that of the average Indian, about 1/3rd of the average Chinese income, or less than 1/12th that of the average American.  20 of Africa’s 57 nations (representing 216 million Africans) have lower per capita purchasing power than the people of Haiti ($1,750/year)!  Only 16 African nations (representing 276 million persons) have PPP’s greater than India’s $5.9k/year.  Africa’s engine of population growth, Nigeria and its 5.2 million/year growth has a per capita PPP equal to that of India’s $6k/year PPP.  Africa seems not to be the answer to the question of how to revive slowing global consumption.

 

Chart-21-A-I-C-average incomeAverage annual income growth and potential consumption growth

Higher income population growth is fading away and is replaced by very low income population growth (charts below).  It is no coincidence that the global economy is slowing down…the only people “surprised” are those paid to be surprised and claim that no-one could have foreseen this.

 

Chart-22-OECD vs. rest of worldOECD vs. the rest of the world, change in population

 

Chart-23-high vs low consumer nationsHigh vs. low consumption nations, global population change

 

The growth trends are as follows: Africa rising, India fading, China turning outright negative to join most advanced economies…and the implications should be plain – except perhaps to those whose salaries depend on not knowing.

 

Conclusions:

1- Once nations go through core peak population growth (YoY), subsequently or concurrently, they exhibit declining oil consumption suggesting slowing economic activity.   Central banks utilize lower interest rate policies to encourage higher credit consumption and leverage. Increasing debt is substituted for declining organic growth and weakening consumption.

2- As wealthy (with greater income, savings,  credit availability), high consumption nations core populations growth peaks, slows, and/or flattens or declines, those replacing them are from two inferior sources of consumption…1) the old (65+) from high consumption nations (generally living on fixed incomes and consuming significantly less in retirement) and 2) the relatively poor of India, Africa, Brazil, etc.  These high quantity, but low quality replacements (extremely low earnings, savings, little to no credit) are unable to make up for the lost consumption of shrinking advanced core populations.  Global overcapacity and waning commodity consumption are easily predictable and likely to persist for decades alongside the declining core populations and their weaker 3rd world replacements.  Global peak oil consumption is likely imminent.

3- The massive debts and obligations incurred (due to central bank interest rate mismanagement) to stimulate consumption in nearly all advanced and developing nations will never be repaid and the obligations will be monetized until?  Secular shrinking core populations will never be capable of repaying or servicing the soaring debt loads.  Massive defaults are a near certainty.

4- The EU, Japan, and China as engines of global growth are finished due to secular declining core and young populations (and burst credit bubbles).  This group will represent net consumption negatives for decades.

5- The US may provide some limited growth (entirely dependent on immigration) and India (plus Brazil) have already begun the long process of declining core growth and with or without a significant rise in credit/debt, peak oil consumption is imminent.

6- Africa is likely too poor, too young, and too late to effectively join the global economy and provide significant consumption growth.

7- The implications of declining global demand go far beyond oil or commodities but also to real estate, the core of the debt held by banks and the cornerstone of most citizens’ assets.  Declining numbers of buyers and declining demand for housing and commercial real estate is likely the true root of the Fed’s and most other central bank actions.  The Fed is a private corporation (not a portion of the Federal government) and its owners are the largest banks in the world.  That the Fed is taking action at the behest of its owners, the banks, to prop up the value of their collateral shouldn’t come as a surprise.

8- Central bank actions have taken what was always going to be a difficult transition from economies premised on population and credit growth to a more sustainable model and made it a looming disaster.  Central bank actions goosed the good times and left absolutely nothing enabling us to deal with the hard times to come.  Their leadership has been horrendous and their continued leadership is almost certain to induce catastrophic outcomes.

9- A change in leadership is needed if a positive, sustainable future is the goal.  Not simply a new president or party, but an entirely new dialogue and a paradigm shift.  Information such as I and many others are presenting must be disseminated to show the reality we face.  I believe that “we the people” of the US (and world) have faced worse situations than this.  We can do the hard things necessary if offered factual information and make the shared, painful short term changes that will lead to a brighter future for our children.

 

Charts by Chris Hamilton

 

 

 

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3 Responses to “Demographics and Major Financial and Economic Trends”

  • kcst1300:

    Global oil consumption is as follows mbpd: 2014 92mbpd, 2013 91, 2012 90, 2011 89, 2010 88, 2009 85, 2008 86, 2007 87, 2006 85, 2005 84, 2004 83. Oil consumption is not decreasing.

    The avg price per bbl in 2014 was around $100/bbl. The average price per bbl in 2015 is anybody’s guess but baring a significant event, will be significantly below $100/bbl. Current spot prices for both Brent and WTI are under $50/ bbl. I expect significant increases in oil consumption beginning in 2015 and continuing as prices are weak.

    Mr. Hamilton’s analysis was wealthy country centric. Developing countries will continue to drive (no pun intended) demand for oil as they desire autos coupled with relatively inexpensive gasoline. Auto ownership in India / China has much more room to grow.

  • SavvyGuy:

    Excellent analysis and charts, though I would also like to add that the widespread adoption of technology (e.g. cell-phones, the Internet, on-board electronics in higher-MPG vehicles, etc.) is perhaps also a causative factor in the economic slowdown and reduced oil consumption over the past decade or so.

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