Quick Take

According to FRED data, the economy is facing a significant demographic shift. The total population growth rate, demonstrated by the blue line, is on a steady decline. This trend is equally mirrored by the working-age population in the U.S. (aged 15-64), shown by the red line, indicating a slowdown in labor force expansion.

A contrasting trend is observed in the population aged 65 and above in the U.S., represented by the green line, which is on an upward trajectory. This rise can be attributed to increased life expectancies and the aging of the Silent and Baby Boomer generations.

Population, US working age population, population age 65 or over: (Source: FRED)
Population, U.S. working age population, population age 65 or over: (Source: FRED)

These trends suggest a future where the economy will witness an increase in withdrawals over contributions. The primary impact of this shift could be felt in the pension systems, which are primarily comprised of stocks and bonds. Additionally, with potential economic downturns, Baby Boomers might liquidate assets like their pensions and real estate investments earlier than anticipated. Further, GenX may consider early retirements in a less-than-thriving workforce.

Population, working age population of Japan: (Source: FRED)
Population, working-age population of Japan: (Source: FRED)

Japan faces a similar issue, namely a declining population, which began in 2008. In addition, the growth rate of the working-age population has been negative when calculated on a year-over-year basis since 1996. Looking at demographic and debt trends, it seems Western countries are following a trajectory similar to Japan’s.

This scenario could lead to significant sell pressure on these assets, including bonds, which are experiencing their worst drawdown in decades. The demographic change, coupled with the potential recession, could have broad implications for the future dynamics of the economy.

Could a deflationary currency such as Bitcoin be a viable solution to the ever-expanding credit system that lacks adequate population support?

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