The future of the global economy
If workers drive the world’s economic output, many of the largest economies *might* be nearing their peak—especially in high-income countries. This dynamic hasn’t ever occurred in modern times and the global financial system might be in peril.
The primary working and consuming ages are from around 25–64, which I used to filter United Nations demographics data shown in the charts in this article.
Let’s start by looking at how the working-age population of the top world economies compares.
United Nations projections show the working-age population of the United States plateauing for the next decade and modesty rising for the rest of the century.
According to the projections, the second-largest economy, China, looks like its working-age population is peaking and will begin a steady decline for decades, and most likely for the rest of the century, according to the projections.
The working-age population of the 3rd and 4th largest economies looks like they peaked around 2000 and will dramatically decline in the following decades.
The 5th largest economy’s working-age population looks like the best so far, with high growth for at least another 1–2 decades before hitting a plateau and most likely declining.
Now, let’s zoom out to look at how the continents of the world look.
Europe’s working-age population looks like it’s beginning a rapid decline, which Asia could join around 2050. North America’s working-age population looks relatively strong in comparison.
South America’s working-age population looks similar to Asia’s. Oceania and Africa look like they have the best prospects.
The United States, India, Australia, Egypt, Philippines, Indonesia, Israel, Norway, Sweden, New Zealand, South Africa, Mexico, Argentina, Canada, Nigeria, and Pakistan have strong working-age population growth prospects relative to the size of their economies.
Now, let’s look at how the working-age populations compare based on income level.
The working-age population of high-income countries looks like it topped out in 2020, and upper-middle-income countries will likely peak around the middle of the decade.
Projections show the working-age population of middle and especially low-income countries will continue to grow for decades.
Unfortunately, if you believe NOAA climate models, many of the regions with the best trajectory are located in areas that climate change will potentially disrupt the most in the coming decades.
What does all this mean for the global financial system?
The big question is what all this means for the future of the economy. My best *guess* is that the world will desperately and erratically seek safe havens and growth while implementing financial repression.
I’m assuming these U.N. projections will be directionally accurate, and the growth rate of working-age populations is a significant factor in predicting economic growth. I believe these things to be correct, but I could be wrong.
Despite the burst of inflation due to the reopening of the economy, supply-chain bottlenecks, and the largest money supply expansion in modern memory, I think fiscal and monetary authorities in the United States will need to continue to battle disinflation.
This battle could come with significant turbulence if policymakers make any mistakes. Rapid inflation could be followed by rapid deflation, then authorities step in to reinflate and the cycle repeats. But it’s impossible to really know.
The system needs USD to survive—the reluctant safe havens
The global financial system is built on the United States dollar. 80 percent of global trade is estimated to involve U.S. dollars. The system needs USD to survive, at least in short to mid-term time horizons.
If economic growth is impaired by decreasing working-age populations, additional dollars will need to be pumped into the system to maintain the asset growth required to maintain the current financial system.
The denomination of most of the world’s debt is in U.S. dollars, and debt means interest expenses. When an economic shock happens, the liquidation of U.S. assets often occurs to raise U.S. dollars to cover US-denominated debts.
This dynamic is why the U.S. monetary authorities (the Fed) bailed out Mexico, Australia, Brazil, Denmark, Korea, Norway, New Zealand, Singapore, and Sweden as one of their first measures when the 2020 crisis hit in March.
During the Great Depression, U.S. monetary authorities couldn’t expand the money supply without the fear of gold redemptions until Executive Order 6102. Interest rates were actually jacked up in the middle of the depression to prevent gold outflows, which further exacerbated the situation.
The fiat system we now have was crystallized after the unilateral cancellation of the direct international convertibility of the United States dollar to gold.
Instead of gold, the most powerful monopoly of force backs the U.S. dollar, which allows for a more lenient monetary policy.
The federal government doesn’t use taxes to fund itself — it taxes to give its currency legitimacy. This legitimacy drives economic productivity.
The federal government’s only constraint on spending is the productive capacity of the economy. Deficits don’t matter and will likely go much higher. But inflation does matter and — if required — will be stomped out with taxation, tapering, and interest rate increases.
The system needs financial repression to survive
The denomination of the majority of the world’s debt is in U.S. dollars. Debt drives production, which is taxed, and debt requires interest payments.
In a world with dying working-aged populations, interest rates might need to go deeply negative in real terms. Real interest rates are defined by subtracting the inflation rate from the nominal interest rate.
Many countries already have negative nominal interest rates and the United States just realized a -4% real interest rate for 1-year treasury bonds in May 2021.
The system needs growth to survive
Economic growth is required for the global financial system to survive in the 21st century and the world will need to invent new ways to increase productivity with diminishing workforces.
Funding for speculative moonshots and new innovations could continue and accelerate as the world desperately seeks growth. Artificial intelligence, autonomous technology, nuclear fusion, gene editing, and the further digitalization of the world will be needed to make up for the unprecedented diminishing labor capacity of the global economy. These investments are liferafts pushed outward by the wake of a sinking ship.
*I am not an economist, and any statements I made in this article should be presumed incorrect until you do your own research.