The blog has now been running for 17 years since the first post was written at the end of June 2007. And the world has changed quite a lot since then:
- There was the 2008 financial crisis, one of its early forecasting successes
- This led to the publication of ‘Boom, Gloom and the New Normal: How the Western BabyBoomers are Changing Demand Patterns, Again’, co-authored with John Richardson
- It explained why the crisis had happened, and suggested it marked the end of the “demographic dividend” that had provided 25 years of constant economic growth
- Then there was the Covid pandemic – where unfortunately its constant warnings in February/March 2020 were ignored until too late
- Russia’s invasion of Ukraine then ended the ‘peace dividend’ that followed the fall of the Berlin Wall in 1989
The past few years have been very difficult for most people. And unfortunately, all the signs are that things will likely get worse, rather than better.
THE SUPERCYCLE’S DEMOGRAPHIC AND PEACE “DIVIDENDS” ARE NOW HISTORY
The demographic and peace “dividends” meant President Clinton had balanced budgets in 1998 – 2001; the only years between 1970 – 2023
As we noted here in January:
“It is clear that the two super-critical ‘dividends’ of the past 30 years are now reversing:
- The ‘demographic dividend’ of constant growth and low inflation created by the baby boom generation has come to an end. And increasing life expectancy means the boomers are becoming a replacement economy.
- Secondly, we have lost the ‘peace dividend’ created by the end of the Cold War in 1989. Instead, we have two major wars underway – in Europe and the Middle East.”
As the chart shows, the US actually had a Federal Budget surplus between 1998-2001 as result.
But those days are long gone.
THE DEBT INCURRED BY STIMULUS SPENDING CAN PROBABLY NEVER BE REPAID
MAJOR CENTRAL BANK STIMULUS SPENDING 2003 – 2024
Instead, governments and central banks gambled that stimulus spending could somehow replace these dividends.
And they lost the bet, massively, as the chart shows:
- 2003 – 2007: Stimulus doubled from $3tn to $6tn
- 2008 – 2019: Stimulus rose 8x to $49tn
- 2020 – 2023: Stimulus rose $23tn to $73tn
$73tn is a lot of money to repay. And there are increasing signs that it probably can’t be repaid.
Even the USA is in trouble. Its interest costs will be $1tn this year – more than Defense and Medicare spend.
ASIA IS HEADING FOR A CURRENCY CRISIS
Japan is the case study for the problem, as we’ve discussed over the past year. It has high debt levels, the world’s oldest population and a weak currency:
- Markets are beginning to realise this is a not a good combination
- The yen is now at a 38-year low versus the US dollar
- And the Bank of Japan is running out of options
Last week saw the yen fall further, to USD 1: ¥ 160. And markets know the Bank of Japan can’t afford to defend it by raising interest rates to world levels. Its debt is already >250% of GDP.
But if it lets the yen continue to fall, other Asian countries will likely also devalue to support their exports.
As the chart shows, all 4 major Asian currencies have already fallen very sharply against the US$.
And as we have seen with Electric Vehicle tariffs, the EU and the US are no longer prepared to allow key industries such as autos to be replaced by subsidised imports.
As a result, geopolitics are now rivalling economics as the key driver for decisions.
THANK YOU FOR YOUR SUPPORT OVER THE PAST 17 YEARS
It is a great privilege to write the blog, and to meet many readers at speaking events and conferences around the world – both virtually and in person.
Thank you for all your support.