Demographics ARE Destiny
The understanding that demographics shape our world is crucial, particularly when considering the interplay between debt, the economy, and asset prices. Over time, the Western world has experienced declining population growth rates, leading to a slower trend rate of GDP growth. This aging population also bears a significant amount of debt, further exacerbating the economic challenges. Governments and central banks are acutely aware of these dynamics and are striving to prevent the baby boomer complex from collapsing.
Government debt is being used to offset the aging population in America. So as the population ages, growth slows and government debt increases because they're having to pay the interest on the debt to offset the growth that's missing. It's trying to keep the system together.
If there’s no new people entering the workforce (population is aging), then there’s no growth in the economy. The economy is contracting. Debt is being used to offset that contraction and spur growth.
So the older the population gets, the more they debase the dollar.
Demographics are dictating the fiscal and monetary policies of the federal government and Federal Reserve Bank.
Barring years coming out of COVID, we can see that with the slowdown population there is also a slowdown in CPI (measured inflation).
The sole job right now of the government and Fed is to prop up baby boomer investment assets - at the expense of you & me.
As the population contracts and baby boomers retire, tax revenue goes down but government expenditures go up. Boomers are no longer working but instead collecting Social Security. Not only that, but they’re also divesting - meaning, they’re selling investments each month in order to withdraw money and live through retirement.
So, if government revenue is dropping and expenditures are rising, how is the difference being accounted for? More government debt financed by the Federal Reserve. It’s a constant cycle.
We’ve actually seen a similar situation coming out of World War II. After the war, the US had a tremendous amount debt that forced the central bank to use financial repression through Yield Curve Control (keeping interest payments low, restructuring debts) - almost the same effect as today with the Fed increasing the size of their balance sheet (debasing the currency).
From this, the economy went through cyclical boom/bust cycles, just like right now. The stock market followed this pattern.
All this is to say that assets are going to absolutely rip to the upside over the next few years. And wealth be created.
BUT…the majority of wealth will be created only within a couple asset classes. I’ve written tirelessly about this and want to drive that point home.
We need to understand this. We need to understand what is happening and why.
As soon as it all clicks, you realize that a 20% drop in Bitcoin or a 12% dip in QQQ 0.00%↑ really doesn’t matter because in a few years, we’re going to be lightyears away from today’s price. It’s opportunity.
Fidelity Research put out an astonishing chart on a multitude of different assets/asset classes and plotted them based on their risk/return. I want to show you that chart and show you the best-performing asset by far and what this means.