The US population expands yoy by approximately 1.5% (producing a doubling time of about 45 years).
The rate of change here has not diminished. Every new entrant needs an auto loan, housing loan, student loan etc. In a world of exponential curves the curve of population growth and debt creation look likely to continue, for the moment, due to the actions of the ‘elites’.
The problem here, for now, is that all these new entrants have not created new jobs. Inflation did not rise sufficently to perpetuate the steep increase in debt by government and the private sector. Money leaked from the US system into emerging market bank accounts creating a surge in USD reserves rather than a surge in consumer prices although all asset prices did surge simultaneously in 2007.
Foreign held USD reserves have moved from less than 1trn in 1998 to around 10trn today.
Much of the bet on commodities and precious metals are about these reserves. As the dollar is debased where else will these excess reserves go to protect some of their purchasing power? The problem is widely held in that so many states across the world have amassed vast mountains of USD paper obligations. Here just a few charts to illustrate the rapid pace of USD creation.
Indonesia here:
China here:
Russia here:
Singapore here:
etc etc, It doesnt matter whether you look at Saudi Arabia or Norway, Brazil or Japan the accumulation of USDs is a world wide phenomina. A wall of paper obligations has flowed from developed consumer markets to emerging and developed alike producer markets.
I put it to you that the inflationary gun was loaded long ago but it has yet to truely be fired but this event is inevitable.
The US funded the formation of this historic mountain of USDs via its persistent trade deficits with the rest of the world.
And from consumer to government all accumulated a debt mountain that has never been seen before. Many observers make comparissons with the post ww2 environment but clearly this is a mistake. Post ww2 the state had no unfunded social security obligations and the consumer had near to zero debt obligations. There is no comparisson at all to the post ww2 world re current debt levels.
All this debt and yet no investment? how can this be?
There was investment but not in the US unfortunately. The investment occured in the surplus nations. The US has never looked so uncompetitive. Consumer good were purchased instead at a huge future cost to the US economy.
The US savings rate went negative. Note the close correlation to interest rates. (ie interest rates are set via the central planners at the FED. They knew what was occuring re the savings rate decline and they knew they could encourage yet more consumption via low interest rates). And remember this ultra low savings rate just as the baby boomers start hitting their retirement.
And i dont want to single out the US as being the only advocate of this monetary madness. The UK are just as bad if not worse than the US in implementing this particular flavour of economic suicide.
So we arrive at developed world issues like a lack of job creation as they struggle for competiveness on the world stage due to inflated salaries, over burdened regulatory frameworks and a lack of investment in R&D etc.
It all concludes in producing charts like this above which was released last Friday. We can see the continued population growth has not fed into job growth.
So the world of exponential debt growth got ahead of herself in the 90s and 00s it seems. The over hang is/was considerable as future capital was brought forward and consumed in exchange for consumer goods into the current. The price of this lack of investment and bringing forward consumption must be paid for but by whom? The giant misallocation of the last decade is to met by those that did not consume and saved. Both the soverign states with usd reserves as well as the middle class and pensioners with ‘excess’ usds are to pay. Expropriation via the printing presses and rule changes will and are being used to fund the the hole. The unintended consequences will be immense and the world will swing widely from boom to bust as those with capital seek to avoid the expropriation. The majority of the world’s population will suffer greatly for the debasement and misallocations that will occur as a result of this giant experiement.
But we must remember that for all the misallocations the wonders population and debt growth will come back to provide more booms in the cycle before a final great bust of the fiat monetary system when finite resources inevitably meet concepts of unlimited debt and exponential population growth. I hope im not around when the two collide. For now we have a historic inflationary period travelling toward us. The expropriation is in her very early days for now.
Rich
(6 votes, average: 5.00 out of 5)
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