Are We Heading for a 2030s Depression? - Understanding Global Economic and Population Shifts
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On your host David stein today is episode four eighty seven. It's titled global economic and population shift. Are we heading for a twenty thirteen depression? A month ago, I received an email from a listener.

He had just read a book title, prosperity in the age of decline, by brian and Allen blio. This book came out ten years ago, and in the book, they are predicting a great depression in the twenty thirties. They go through their analysis.

And this listener's question is, do I agree that we're going to have a great depression in the twenty thirties? And why are we not? And what should we as investors, do to protect ourselves if there's going to be this type of economic decline? Brian and Allen volie are principle economist at I T.

R. economics. This is the oldest privately held continued ly Operating economic research and consulting firm in the U. S. According to the website. They also say their predictive ability or their their historical track record in predicting economic events is close to ninety five percent.

They have a table on their website, that is their record and IT shows different economic indicators such as GDP industrial production says their accuracy each year is ninety five and ninety eight percent. I don't have access to the actual predictions, so I don't know if the record is that accurate. IT seems a little high, but maybe IT is.

But we're not worried about whether they're able to predict economy that actually most firms and individuals are not. So when I see a ninety nine percent success rate in predicting economic data, IT raises some red flags, and I want to to dig deeper, but I didn't find anything other than this table. I did spend some meaningful time on their website trying to understand the basis for the twenty third is great prediction.

What I do like about their side is they're not bombastic, there's no fear mongers, its level headed. But there are a lot of economic generalities, or link to one of the blog post top five causes for the twenty thirty y's great recession. They believe that will be global nature last six years or so. As reminder, when we think about what a pression is, is a severe economic contraction where GDP fall, GDP being the monetary value of what's produced good and services theyll be fewer things produced, fewer services rendered in comes will fall. Unemployment will increase, budget deficit will expand due to lower tax revenues in higher entitlement payments such as unemployment benefits.

Typically the federal government will step in with some type of fiscal stimulus, could be additional payments to the private sector, could be a tax cut, often is combined with the federal reserve or other central banks purchasing bonds, effectively monetizing debt, so that the private sector networks and they're spending power increases, hopefully providing additional stimulus to encourage people to buy things, so that companies produce so that the economy rebounds. Central banks will lower their policy rates with the hope that that will pushed down a longer term interest rates, encouraging more borrowing by households and businesses that leads to additional money creation and additional spending power. That's what happens during a recession.

And a depression is just A A longer and deeper recession. In looking at their post, another blog post, what will cause IT, I mentioned that it's it's some generalities and and I Frankly had trouble putting the logic together. They mention a slowing population growth, aging population.

They write as we approach twenty, thirty. And aging population is a global issue. That is a strong reason for the upcoming great depression.

Many major countries, especially china, germany, russia, japan and canada, projected the highest percentages of population in the forty to sixty four age group as well as the sixty five plus age groups starting in twenty thirty. So the population getting older and will address that. They mention U S.

Won't dodge the board. We also have an aging population. This is bad news. They write because the older generation won't have as large of a Younger base is in the past to support IT by paying a larger share of taxes.

Having fewer Young people may also lead to significant labour problems heading into the twenty thirties. This gets back to the dependency ratio. How many workers are there producing things, paying taxes to provide goods and services.

And through transfer payments, income to the older population, they point out that there could be rising health care and entitlement cost for the elderly, not enough funding, potentially leading to the security and other benefit cuts. Those cuts could lead to a recession. And then they mention the national debt, although they weren't real clear how that could lead to a great depression.

The fact that there's higher debt levels other than, I guess, more benefit cuts, higher tax revenue and that could lead to an economic contraction. So I was a little model not as crisp and clear as to what could happen. What we care about is what can we monitor now to understand are the risk increasing? I tend to be sceptical of long term forecast because the range of potential outcomes is so high.

And we will look at here in a few minutes the latest U N. Population projections, and they're incredibly wide, even though there are ninety five percent confident in this incredibly wide range of population levels. Another thing that i'd like to be able to do is to conceptualize, how do we conceptualize a simple example, or an anew te, so that we can understand, in this case, the impact of a shrinking population on the world economy.

And the third thing is, what, if anything, should we do now to prepare with our investing? And we'll look at each of those things in this episode before we continue, limit, pause and share some words. For one of this week, sponsors delete me having a personal information on the internet is like giving strangers the key to your front door.

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Delete me now with a special discount for a listeners do they get twenty percent off you're delete me plan when you go to join, delete me that comes last, David twenty and use promo code David twenty a checkout the only way to get twenty percent off is to go to join delete me dotcoms lash David twenty and enter David twenty at checkout that's join delete that comes slash David twenty cold David twenty here's a depression scenario we have done episodes on the national debt. Most recent one was a three part series that concluded with episode four seventy nine. In that series, we saw that IT isn't the absolute level of the national debt that matters.

That is, how big is IT relative to the economy. What is the national debt as a percent of GDP? I express some concerns regarding the level of national debt. We looked at what we can monitor to see if things are getting out a hand.

Specifically, we can look at what is the projection for the budget deficit in the current year in the next year because the debt to GDP goes up by the budget deficit to GDP each year. That's the first change of who yet a seven percent estimated budget deficit to GDP in twenty and twenty four fiscal twenty twenty four that ends this october's what the congressional budget office is saying. That's large.

Barring anything else that would take the current level of debt to GDP, that's around ninety seven and ninety eight percent, over one hundred percent. But the cbo isn't projecting that because there are two other factors that impacted the average interest rate on the debt and how fast the economy is growing. Last year, the the U.

S. Economy in current dollars and nominal terms grew at six point three percent, about the the same level as the budget deficit to GDP, in which case the debt to GDP wouldn't have grown at all because the economy was growing as fast as the budget deficit. The other two factors, and we win into detail in this, an episode seventy nine called genius in inequality, nominal GDP growth impacts the debt to GDP baLance, and the average interest ate on the debt.

And if the economy is growing at a faster rate than the average interest rate on the, which is around three point three percent right now for that interest rate, that reduces the national debt to GDP the difference between the average in rate and Normal economic growth if the economy is growing faster than the average interest rate, congressional budget office estimates that in, as I mentioned, that budget deficit to GDP will be seven percent in fiscal twenty twenty four and six and half percent in fiscal twenty twenty five. They anticipate in fiscal twenty twenty five that debt GDP will go from ninety nine percent to one hundred and one point six percent. So that's only two point six percent point more even though the budget deficit to GDP is expected to be six and a half percent.

And so again, the rate of economic growth in a lower average interest rates, bringing that down. But those are things that we can monitor. The other thing about the national debt that we can monitor is interest rates ally, the term premium, the additional compensation that bond investors, U.

S. Government deal investors demand due to uncertainty regarding the national debt, the risk to false unexpected inflation, that term premium right now is negative point o six percent. The bond market is not worried about the fiscal situation or the unsustainably of the national debt.

The estimate of that term premium Price in the bond right now, looking out ten years is an expected term premium of zero point six percent. That's not very much given the potential risk, but that's what we can monitor now. And the markets not worried about the national, there's an aftermarket.

And for the underlying bonds, both in the us. And around the world, the congressional budget office released new projections for the population in the U. S.

There are three hundred forty two million people in twenty twenty four. It's expected to grow to three hundred and eighty three million in two thousand fifty four. Now this is what they call the relevant population for estimating source security payroll taxes.

They see the population of those age sixty five, in order growing faster than the Younger groups of all population, is expected to grow zero point six percent this year through twenty thirty four or point six percent every year. And then after an expected grow, only point two percent per year between twenty forty five and two thousand fifty four, but still at population growth. One of the major point though is that net immigration will drive population growth.

As the fertility rate comes down, but we don't know how much immigration will be. And so is is difficult to predict a great depression and two and thirties based on population decline because we don't know what the immigration will be and we don't really know what the birthday is going to be now. Last month, the congressional budget office director, phillip swag, testified in front of the housework and means committee about the sustainability of social security.

There's two main components. There's the old age and survivors insurance, which is what retirees receive, and there is the disability insurance, which individuals of all ages can receive if they're disabled. They estimate that the old age and survivors insurance will run out of money.

In terms of the trust fund, what's been set aside, it's held in U. S. Government bonds that will run out in twenty thirty three, the disability insurance fund will run out.

The trust fund will run out in twenty sixty one. The director points out, though, that if congress would raise payroll taxes by four point four percentage points that would put social security on a sustainable footing. There would be enough benefits through two and ninety eight.

That's the restroom in. And so will congress and the president sign that in the law? No one's talking about IT, but that could be done, in which case retirees would continue to get their benefits.

But the other thing they could do is they could reduce the benefits sum IT could be a in scale. Maybe individuals over a certain income level don't receive as many benefits. These are all changes that can be modeled, but they're difficult understand what actually what happened that could lead to a depression.

In the twenty thirties the U. N. Released their population estimates. We discusses two years ago. They're now saying that the population in the world will peak in amid twenty eighties at ten point three billion. That's up from eight point two billion population the day.

Now their previous estimate would peak at ten point four billion, so point one billion less people. What I liked about the report this time is they really focused on the probabilities. There is a wide range ten years ago based, and there was a thirty percent probability that the world's population would peak this century.

Now they say it's an eighty percent probability, which means is the twenty percent of the probability that population keeps growing. A decade ago, they thought the population in the twenty eighties would be seven hundred million people, greater than now the estimate. But consider this, this is a ninety five percent probability range.

And the low, and they say the population peaks at nine point seven billion in the early twenty seventies instead of ten point three billion. The higher into the range is that IT reaches eleven point four billion in twenty one hundred and keeps growing. The base case has one hundred and thirty four million birth per year, but IT could be as high as one hundred and thirty eight million per year or as low as a hundred and ten million per year.

Life expectancy in paxon could be from seventy, seventy, eighty two years, men, or eighty two to eighty six for women. And the fertility rate does IT stay above the replacement rate of two point one birth per female, or does IT fall below two point one. All these variables, very wide range of population estimates.

So we don't know, we do know though, and sixty three countries make up twenty eight percent of the worlds population that their population is already picked. And now it's drinking. This includes china, germany, japan and the russian federation.

That means they will have slower economic growth because the growth of GDP, the monitor value which produced, is a function of population. If the population is not growing, if it's shrinking, they don't need as much stuff, so they produced less. And that leads to slower economic growth.

If the economy is slowing, then that means corporate profits in aggregate aren't really growing because companies aren't necessarily producing more or selling more. Before we continue, let me pause and share some words from this week. sponsors.

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Now even if the the population is shrinking and let's say, the number of workers to support retirees and producing things, fewer workers that can be offset by technology improvements, Better skills, in other words, higher productivity can offset some of the impact of a reduced working age population. So even if there are a fewer workers, that doesn't mean that retirees won't be able to get the things they need. And so that's another reason we don't know if there's gonna be a great depression in the twenty thirties because we don't know what innovation will be, what productivity will be to allow the production of goods and services for those that need IT.

In the remaining one hundred and twenty six countries, U. N. Estimates the population will continue to grow through twenty, fifty four and many, or peak perhaps in the year twenty one hundred.

And those countries include india, indonesian, nigeria, pakistan and the U. S. Ultimately, population is a function of the number of births minus deaths.

But even there, they their expectation is they'll be more deaths than birds in the twenty eighties. That's why the population shrinks. But again, that could happen in twenty seventies or IT might continue to have more.

The deaf. The one prediction though, that they had, that they were absolutely certain about the united nations was net migration, immigrants minus immigrants. How many people are coming? This is how many people are going across the world is always zero. And they even have a graph.

I have a red horse on online question is, which countries will be more receptive to immigration to help boost their population, provide more workers, provide more consumers to buy the goods, produce and lead to higher economic growth in which will not will have workers leave. So there's a net migration out reducing the population. Now this decision to have children is its very individual.

All street journal quoted Erica pipman. She's forty five, banker and ryan, north CarOlina, as SHE says, SHE and her husband decided to only have one child because IT demands on their time caring for elderly parents. Their sun is eight now, and there is involved in theater, soccer, summer camps.

And there, they estimate was gonna to raise a child monetarily. And the time pen says, SHE feels like a Better mom, but he has more time to spend with her son and also volunteer in his school and other things. And these are individual decisions made around the world, not just in the U.

S. Rachel Jackson, whose president of the global aging institute, says people are plugged in to the global culture. They know that outside perhaps their village that people have fewer children, they see IT on television.

May, mariam Thomas SHE, thirty eight, lives in mumbai, india. SHE runs an audio production company and he chose not to have any children, says she's never felt the tug of motherhood. SHE says, I think now we live in a really different world.

So I think for anyone in the world, it's tough to find a partner and then eventually to have children. Futility rates are dropping in sub saharan africa, which are Jackson of the global aging institute, said. The fewer children, you see your colleagues and peers and neighbor's having IT changes the whole social climate.

We're seeing that around the world, which is why the birthrates are falling. Now countries are doing what they can to try to reverse that. Japan certainly has.

Their futility rate fell to one and a half in the early nineties. That's obviously below the the replacement rate. IT got as low as one point two six in two thousand and five, and IT reached one point four five.

But now IT started finding again, back to one point two six, despite all the various programs the government has put in place, including a recent program where if you have three children, they will get free college education, irrespective of the family income, and they get fully paid parentally. So governments are trying to encourage more children. One way I thought about just how do we conceptualize this is just consider a smaller family.

There is a larger family. A larger family has more mouths defeat. They need more bad.

They perhaps need a bigger shelter. So a larger family needs more resources to support them. So if this was economic, we're talking about food production, shelter production.

A larger family would have a larger GDP, greater production. If they are adding more kids in getting a bigger than their GDP would grow with a small, their family would need fewer things, less resources. The economy wouldn't grow as fast.

Now we don't know how productive these two families are in growing food, in writing shelter. Maybe they are more productive in in doing that and they can produce maybe even more food than they need. But when we think about pulag, the population shrinking, there's the resources are still there.

The natural resources is the land. It's just a question of how is IT divided up and how are the elderly supported and are there enough workers to produce the stuff. Now IT impacts GDP and I can impact the stock market, but we are not in a situation where we're running out of things in the world.

Now if he keeps growing, we talked about natural constraints, resource constraint, but population shrinkage is not a travesty of itself because the resources are still there and just how are they allocated and what will innovation be and what will even desires be? What will people even want to have? There's not a risk global starvation due to population drinker.

It's more just a could impact overall economic growth, which can impact the stock market in the rate return on investments, but potentially with slow of population growth, inflation come down is very low, perhaps flat, in which cases we've mentioned if your currency isn't being debated due to inflation, then we don't necessarily need high rates of return on investment because we're not trying to offset the impact of flame and can get a real way to return with less effort. Now within a country though, such as the us, when the population stagnates, that can have an impact. Because somewhere like the U.

S. People are more mobile and a lower percentage of infrastructure spending, spending on education, pensions is funded by the federal government, a lot of its local and the state level. And if there is a situation where a particular region is seeing a population shrinkage as people move from, let's say, the southern linos to arizona in the southwest, that hurts southern linos IT can hurt property values because there are few people to be able to to buy the houses.

IT hurts the space, which there's less revenue for the schools. Now maybe there are fewer students also. But interestingly, the fixed cost don't seem to go down as fast as the population tricks and and perhaps you to do to remove racy or whatever, but there's less tax revenue.

And yet the streets for the city is not like they tore up the streets. So the infrastructures all there, even though there's fewer population. So that can have a big impact within a given country as a population stagnate or even shrink.

IT was fascinating travelling in japan as we went out into the countryside. You don't see as many children and there are more empty houses because japan population is drinking. There's an impact on pensions.

A lot of the the local because there's less money to contribute to them because there's lower tax revenue. In conclusion, and as we think about these economic in population trends, population growth is slowing. We don't know by how much there are too many variables the birth rate is set up.

We don't know when the population will peak or if IT will at all. We don't know where the migration of workers will go. We don't know what productivity improvements will be, technological innovations, how that will impact if the economy grows faster is what the head of the CPO said.

Then some of those dire predictions of the security won't be as dire. So I always come back to what what can I do? What can we do? Well, we can monitor economic trends.

We can look at leading economic indicators at something that we do every month of money for the rest plus look at is recession risk or depression risk increasing. It's not right now we monitor financial markets. We look at the term premium, what our interest rates are, default rates increasing on corporate bands.

If we get a situation where recession hits than more companies go bankrupt and that least to hire to fall rates, which can impact urban investment, we monitor the average to rate on the debt. We look at the budget deficit to GDP, but these are actual things that we can monitor in real time and sure to term forecast to see if we should be overly worried for our investing. We can continue to focus on cash flow generating investments such as stocks, real and fix income.

We can look at how fast is that cash flow growing and what is evaluation of those casuals? Are we paying a high valuation and perhaps to get a lower return? Or are they had lower valuations, less we on our plus episode for money for the rest of this.

Plus we looked at the high valuation of the U. S. Stock market and compared IT to outside of the U. S. And there was a big difference.

And we estimate using as a camp, the expected returns for each of those under different in areas we model IT out and came up with a reasonable expectation. So we diversify. There's nothing big we have to do now to prepare for a potential great depression.

And in the twenty thirties, that we have no idea whether they will actually come about. Now we do know what we can get on interest rates now investing cash five percent and more. We know how the stock market, what reasonable expected returns for that is.

And we can diversify into many different asset classes, including currency hedges, as we've talked about gold, bitcoin and others. We can get Better at our job and improve skills to generate higher income. We can be disciplined in our spending, our budgeting, we can say, but these are just basic things that we would do, whether there was a forecasts or not.

So monitor the things that we can. We don't stick our heads in the sand, but we save and invest, seek to boost your income, diversify and focus on the things that we can and don't worry about long term forecast because we all know as such a wide range of potential outcomes. So maybe we'll have a twenty thirty depression, but we'll have early warning signs if things are starting to get bad, if term premium Spike, if the average interest goes up, if inflation doesn't come down in the meantime, will receive the cash.

We can now in our investments and watch you grow that episode for eighty seven. Thanks for listening. You may be missing some of the best money for the rest of us content. Our weekly inside guide email news letter goes beyond what we cover in our podcast episodes and helps elevate your investment journey with information that works pressed in, written in visual formats.

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