A Pyramid of Ponzi Schemes

It’s not often your editor is impressed by what’s written in the mainstream press. But Terry McCrann’s column in last week’s The Australian did fill us with some hope that not all mainstream writers are Keynesian Muppets.

Mr. McCrann’s last two paragraph’s sum up the article perfectly:

“At core the new “populate or our future fortunes will perish” cry is the ultimate national pyramid scheme. We need to get to 36 — or 50? — million, to have the taxpaying workforce to support the now ageing baby-boomers. Beware of a Japanese-style population implosion!

“Oh yeah? And when all those younger new arrivals start to age, we will presumably then need to move to 72 — or 100 — million, to have a sufficiently large taxpaying workforce to support them. Just as every boom busts, even our China one will; the laws of arithmetic always topple even the most elegant pyramid scheme.”

Simply put, prior generations have lived beyond the economy’s means. And now that it’s time for payback, that same generation doesn’t want a bar of it. That’s why they’re trying to push the payback period out into the future – increasing the population should help!

But back to Mr. McCrann’s article. He makes a great point on the bogus population argument. Their mainstream’s only solution for the increased cost of welfare and healthcare is to encourage an increased population. But as Mr. McCrann points out, what happens when those people get old?

More immigration? An even bigger population? It all comes back to the issue of exponential growth that we wrote about a few months back.

At some point the exponential growth breaks down, because it isn’t sustainable. If the only reason for increasing the population is so those new-comers can pay for the old timers or to keep house prices up, then that’s a policy heading for disaster.

Besides, if you know that’s the only reason you’re being welcomed into the country what are the odds you’ll stay, or even come here in the first place?

The crazy part of their theory if you work it all the way through to the logical conclusion is that the exponential growth would mean Australia needing the entire population of the world to move to Australia in order to maintain the welfare and health payments.

Our question would be what happens next?

Of course, everyone knows that isn’t going to happen. The whole idea that you can get an economy out of economic strife just by increasing the population is ridiculous. It isn’t sustainable, full stop.

It’s no more sustainable than their claim that you can solve a credit bubble by issuing more credit.
Link -
http://www.moneymorning.com.au/20100802/a-pyramid-of-ponzi-schemes.html
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Baby Slump Leaves Fukui Site Playing Cupid to Spur Japan Growth

Aug. 5 (Bloomberg) -- The coastal region of Fukui has Japan’s biggest share of dual-income households, highest ratio of working women and lowest unemployment. What it doesn’t have is enough babies.

The provincial government this month is starting the Fukui Marriage-Hunting Cafe, a website for singles, to help stem the falling birthrate as it damages the economy. As an added incentive, couples who agree to marry will get cash or gifts, said Akemi Iwakabe, deputy director of Fukui’s Children and Families division.

Japan’s first online dating service organized by a prefectural government follows national measures to extend parental leave that have so far failed to convince women to have more children. The fertility rate has dropped to 1.34 children per woman, shrinking the pool of workers and consumers and increasing the burden on younger employees to pay for an aging population.

“It’s difficult to breathe life back into an economy without children, without young people,” said Naoki Iizuka, an economist at Mizuho Securities Co. in Tokyo. “When an area like this keeps aging, the public finances of that government won’t last.”

Fewer Workers
The Organization for Economic Cooperation and Development estimates the number of working-age Japanese will drop to 81 million this year, compared with the 1995 peak of 87 million.
The average number of children that Japanese women have compares with Canada’s 1.6 and France’s 2, according to the World Bank. The 2.1 rate in the U.S. is considered the minimum for a developed nation to maintain a constant population.

About 23 percent of the country’s population is over 65, the highest ratio among the 62 countries tracked by Bloomberg.

Single Women
Census data show that 32 percent of women between 30 to 34 years old were unwed in 2005, more than twice the number 15 years earlier.

Lowest Jobless Rate
Fukui had the lowest jobless rate in the first quarter among Japan’s 47 prefectures, at 3.3 percent, according to the statistics bureau. About 53 percent of Fukui’s women held jobs in 2007, versus a national average of 48.8 percent. The prefecture also had the highest ratio of dual-income households at 39.6 percent, against Japan’s average of 26.6 percent, census data from 2005 show.

The hope is that members from the Fukui Marriage-Hunting Cafe will pair off and help turn around the prefecture’s fertility rate, which dropped to 1.54 in 2008, from 1.93 in 1985.
Link -
http://noir.bloomberg.com/apps/news?pid=20601087&sid=a8lJlkVWqRuQ&pos=9
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All of which goes to confirm just how interlocked and complex things now are.

It wasn't that long ago that women were being implored to enter the workforce, because more workers were needed satisfy an increasing Demand in the OZ & Global Economy.

In addition, particularly in many Western countries, women were virtually being forced into the workforce, as a double income family was nearly a mandatory requirement, to kept family finances from going broke.

The paradigm is changing!

As can be seen in the Japanese situation, their Fertility rate is well below the replacement level of 2.1, at only 1.34 children per woman and their working age workforce has declined from 87 Million in 1995, to only 81 Million now.

So, Japan actually needs to increase the Female Participation in their workforce to keep production & product Demand rising, but it needs more women to marry (maybe) &/or at least have babies, to stop the declining Fertility rate, the decline in total Population and therefore a decline in Demand!

Of course, if women do have babies, then that will lessen their Participation in the workforce and the Japanese Workforce Participation rate is already in decline, as is the case in many countries, due to Baby Boomer retirements which are just getting under way.

The Gordian Knot is already at work in Japan and has now started to move on the majority of other countries around the world.

Which is one of the reasons that the next 20 years, will be nothing like the last 20 years!

Peak Capital - Our Ultimate Limit?

The five main elements of the world model developed in "The Limits to Growth" study according to Magne Myrtveit .

The LTG study was based on a rather complex model which, however, can be summarized in terms of five main elements, as you see in the figure at the beginning of this post. The five elements are 1) population, 2) mineral resources, 3) agricultural resources, 4) pollution and 5) capital investments. This is just one of the many ways to build such a model. Other choices are possible, but the LTG model, improved over the years, is a good way to capture the essential elements of the world's economy. Despite the persistent legend that the LTG study was "wrong"; the results of the study have been found to be remarkably accurate.

None of the five elements of the model is a problem in itself. But each one can become a problem. In that case, we speak of 1) overpopulation, 2) mineral depletion, 3) famine, 4) ecosystem collapse and 5) economic decline. Often, these five problems are considered as if they were independent from each other. People tend to attribute all what is going on to a single problem: peak oil, climate change, overpopulation, and so on. In particular, economists tend to see the economy as independent from the availability of natural resources. Of course, this cannot be true and in a "dynamic" model, such as the LTG one, all the elements of the economic system interact with each other; either reinforcing each other (positive feedback) or weakening each other (negative feedback). To understand how the economy behaves as the natural resources are exploited (and overexploited) it is important to consider the role of the "capital" parameter. The behavior of the capital stock directly affects industrial production and other parameters which are counted as part of economic indicators such as the gross domestic product (GDP).

In the LTG world model, "capital" is created by investments generated by industrial activity. Capital is assumed to decay at a rate proportional to the amount of existing capital. This is called obsolescence or, sometimes, depreciation. To keep capital growing, or at least not disappearing, investments need to be larger than, or as large as, depreciation. Since investments depend on the availability of natural resources, the buildup (or the dissipation) of the capital stock depend on the progressive depletion of these resources. In the original LTG model of 1972, there were three kinds of capital stocks considered: industrial capital (factories, machines, etc.), service capital (schools, bridges, hospitals, etc.) and agricultural capital (farms, land, machinery, etc.). In the latest version (2004), industrial capital and mining capital are considered separately, as you see in the following figure ( from the synopsis of the 30 year update of LTG). Note how the "capital" parameter (in its various forms) affects the parameters which determine the GDP.



In the graph, you don't see the "capital" parameter plotted. However, industrial capital follows the same curve of industrial production. The other forms of capital have a similar behavior. All reach a maximum level and then decline, carrying the whole economy down with them. Overall, it is "peak capital."

When do we expect peak capital to occur? According to the "standard run" of the LTG report, it may arrive during the first two decades of the century. It may very well be that much of what we are seeing now is a symptom of peak capital approaching: airports, roads, bridges, dikes, dams, and about everything that goes under the name of "infrastructure" are decaying everywhere in the world. The whole economic system is becoming unable to maintain the level of complexity that it had reached just a few decades ago.
Link -
http://europe.theoildrum.com/node/6809
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Of special interest, should be the central position of POPULATION and how everything is interlocked to population!

Home prices: Boom less likely in a baby bust

Home prices will have a harder time rising as population growth slows, a new study finds.


A home for sale is posted at a reduced price in Palo Alto, Calif., in June. Home prices may not rise as fast in the future as they did in the past because slower population growth will weaken demand.

Over at the Bank for International Settlements, Elod Takats has a new working paper that examines how demographics may affect asset prices (ht Torsten Slok). As he notes, standard economic theories suggest that aging will lead to lower asset prices. In an overlapping generations model, for example:

The young save for old age by buying assets, while the old sell assets to finance retirement. This asset transfer can happen directly or through institutions such as pension funds. In this setting, the changes in the relative size of asset buyers (the young) and sellers (the old) have consequences for asset prices.

In particular, the asset purchases of a large working age generation, such as the baby boomers in the United States, drives asset prices up. Conversely, if the economy is ageing, ie the subsequent young generation is relatively smaller, then asset prices decline.

Takats tests this theory on international data on house prices and finds a significant link with population age. He uses that relationship to estimate how much demographics affected house prices in recent decades and to project, based on demographic estimates from the UN, how population aging will affect house prices in the future.

He concludes that demographic trends boosted U.S. house prices by almost 40% over the past four decades. Given current population trends, however, his model predicts that aging will trim about 30% off of house prices over the next forty years.

I should emphasize that this does not mean that house prices will actually fall over that period. Other factors, e.g., growing incomes, should continue to boost prices. But house prices will now face a demographic headwind–blowing at about 80 basis points per year–rather than a demographic tailwind.

These headwinds will be even stronger in Europe.
Link -
http://www.csmonitor.com/Money/Donald-Marron/2010/0807/Home-prices-Boom-less-lik...

Ex Dame Pansi wrote on Aug 12^th, 2010 at 7:08pm:


Yes, thanks for the reminder, I had seen the promos and I will be having a look.

In fact, it is a POPULATION NIGHT, as according to my TV guide, the Tony Jones Q & A tonight, after the Dick Smith doco, is also on Population.

I may record one, as both may lead to Population overload?

Ex Dame Pansi wrote on Aug 13^th, 2010 at 6:30am:


No matter what both major party's say, they are still inclined to the big is beautiful idea (at this time), because they are influenced by big business & Economists, who are convinced that Exponential Growth is not only possible, but that it must happen or the world will end, as was evidenced by the reactions from John Elliott & the big business representative on Q & A last night.  

As Dick Smith repeatedly pointed out, we live on a planet with finite resources, which means that there are limits and we are now approaching many major limitations, as demonstrated by Dr Albert Bartlett in the following series of video's -










1) There is a maximum sustainable Population, for both countries & the planet.
2) The greater the Population, the faster Essential Resources, such as Energy, Food & fresh Water will be used.
3) Population & Energy Growth/Decline ARE DIRECTLY RELATED TO CLIMATE CHANGE.

We are already at Peak Oil, which means that, in all likelihood, the next 20-30 years, will see increasing Demand because the Population is still rising, whilst the great Economic Enabler (oil) will be in terminal decline, as already started in 2005.

The decline of available Supply & the rising Price of our Energy Future, will directly & severely lessen our capacity to sustain our current Global Population, let alone continue to Exponentially increase it!  

In fact, I would suggest the POPULATION/ENERGY problem is not so much a Population Puzzle, it is more a GORDIAN KNOT, which will prove intractable and will finally result in the end of the current Political & Economic paradigm!

Trust me, I'm not a Politician, Economics & Politics can survive without a GROWTH Economy.

However, Economics & Politics will need to adapt, because the human race will not survive any attempt at Extended Exponential Growth!

Btw, VIDEO 3 COMPARES US (HUMANS) to BACTERIA, IT IS APPLICABLE!

Now about this population debate, there is no debate, it's either sustain or extinct.