American Exceptionalism: Decelerating Population Growth, Accelerating Money Growth

Authored by Chris Hamilton via Econimica blog,

Since 1971, and the disconnection of the dollar from a finite gold backing, the value of money (the dollar) has been determined by it"s purchasing power versus the inflation of the assets to be purchased.  Thus printing more money has not necessarily created "wealth" if the assets to be purchased are rising as fast or faster than the purchasing power of the "money".  The Fed touts it"s dual mandate of full employment and stable prices...but the result in prices; not so stable.

The primary global asset purchasable only in US dollars, crude oil, has told a story of wildly gyrating prices.  Since the end of Bretton Woods and the subsequent Congressionally dual mandated roles bestowed on the Fed...crude oil prices have gone bezerk, twice climbing nearly 10x"s within a decade.  This is the opposite of stable (particularly compared to the price stability from WWII"s end until the?Fed took over).

Soooo, theoretically the growth of  "money" should be linked to the growth of the population, to ensure an adequate and stable money supply exists for the growing population.  In a moment I"ll show you anything but a stable money supply.  But first, the chart below shows the total 25-54yr/old US population, those employed among them, and the value in dollars of all publicly traded US stocks (represented by the Wilshire 5000).  Something far beyond population growth or employment growth is pushing up the value of dollar based assets, gauging by US stock markets accelerating appreciation.

With that in mind, the chart below shows the growth of M3 money (the broadest measure of US "money") and the broader 15-64yr/old US population since 1971.  The money supply has grown in excess of 20x"s (2,000%) vs. the working age population (15-64yr/olds) which has grown less than 1x (nearly 70% increase).

This results in a rising ratio of "money" on a per capita of the core population basis, as the chart below details.  The total amount of "money" rose from approximately $5 thousand dollars per working age adult to todays $65 thousand dollars per adult...an increase of  13x"s (1.300%).

The annual growth of the 15-64yr/old core US population peaked in 2003 and annual core population growth has decelerated by 90% since...while annual M3 growth has doubled over the same time period.  The chart below shows the annual changes from 1980 into 2017.

The chart below from 2000 into 2017 shows the change in both core population and M3 money supply, showing the year over year change on a monthly basis...and the current fall in core population growth will continue downward, likely turning negative at times over the next year (yet another first for America).

The final chart is the growth in M3 money supply per the growth in the adult, working age population.  I"m not an economist or expert on much of anything...but that doesn"t look particularly good to me (something to do with "hyper-monetization" or some such thing).

All I can say is the appearance of hockey sticks typically aren"t a good or stable sign but their appearance, just like those of black swans, has become the "new normal".

Is America In A Bubble (And Can It Ever Return To "Normal")?

Submitted by Chris Hamilton via Econimica blog,

Analysts and talking heads have an awful lot of opinions.  Are we in a bubble or aren"t we?  Rather than offer another opinion, I"ll offer the relationship of US economic activity (GDP) against the Wilshire 5000 (representing US equities) and the Federal Reserves gauge of American wealth, Z1 Household Net Worth series.  These are the preferred establishment gauges, so take a look and then you decide.

Gross domestic product (GDP) is a monetary measure of the market value of all final goods and services produced annually in the US.  The chart below shows the annual real GDP growth decelerating since 1950.

The Wilshire 5000 Total Market Index, or more simply the Wilshire 5000, is a market-capitalization-weighted index of the market value of all stocks actively traded in the United States.  The chart below shows the Wilshire 5000 vs. the yield on the 10yr US Treasury bond, since 1980.

Interestingly, each top in the equity market saw a "false dawn" or spike in the yield on the 10yr Treasury only to be followed by significantly lower yields on the 10yr.

GDP vs. Equities

The chart below shows the growth in GDP (blue columns), the Wilshire 5000 (red line), and the ratio of the Wilshire to GDP (black line).  Since the early 1970"s, the US equities market, represented by the Wilshire, has grown more than 5x"s faster than American economic growth (GDP).

GDP vs. US Household Net Worth

Given the sharp rise in asset values, I thought it worthwhile to view the total increase, as shown by the Fed"s US Household Net Worth data, versus the growth in GDP.  The chart below shows US household net worth (all inclusive with real estate, equities, and all asset classes) is fast approaching $92 trillion against US GDP of $18.6 trillion.  A simple division of GDP as a % of HHNW (maroon line in the chart below) shows household net worth (asset values) is growing significantly faster than economic activity supporting those valuations.

If you are curious what this looks like over different periods, the chart below suggests the current periods HHNW growth at double the pace of GDP is an aberration.

Finally, from 1950-->2000, the average GDP to HHNW ratio was somewhat consistent around 28%...if the HHNW and GDP ratio are to come back to their 50 year norm (before they were warped by long periods of near Zero Interest Rate Policy and actual ZIRP)...there are two basic options:

Either, GDP rapidly rises $7 trillion (a 38% increase)...Or, the other option is a 28% decline in HHNW, or a contraction of $25 trillion.  A $25 trillion decline in HHNW would equate to an average $200,000 decline in net worth for every household in America.

Those curious why the financial system has been turned upside down, I think an awful lot of the problems can be explained HERE.  The solutions are nowhere so simple.  There is no question the federal government will continue to attempt to spend our way out of what is a secular trend of slowing growth HERE, but who will be buying that debt is a very good question HERE.