I guess I am a sucker to click on any article describing the next Four Horsemen of the ‘economic apocolypse’ – but this article resonated with me not for the belief in an apocolypse, but for the economic analysis:
My favorite quote from this article (emphasis mine):
The central-bank economic models that worked in the past aren’t functioning properly, in part because of changing demographics and technology.
“You have the Four Horsemen of the Economic Apocalypse out there as well,” Limbrick said. “You have aging baby boomers, tech disruption, a globalized labor market, and massive debt.”
And if that’s not enough to spook investors, they’re realizing that the next bank crisis will most likely end in losses on bonds and deposits rather than another bailout.
So if you think about it, the Fed has a real uphill battle trying to spur growth in this environment.
- Aging baby boomers are retiring, reducing spending and income, slowing the growth of the workforce
- Tech disruption making everything more efficient – squeezing margins and reducing costs, allowing product producers to lower prices to try to gain market share while still being profitable. Just look at how many free services we use on the web these days – and there is so much free software and information published to make it easier to create things.
- A Globalized labor Market making it easier to have work done anywhere in the world. Anybody, with the assistance of services such as Alibaba, can work with Chinese manufacturers to build a product – increasingly leveling out wages across the world.
- Massive worldwide government debt has pulled forward demand – or ‘borrowed demand’ from the future. Governments piled on debt to help us grow out of the last economic malaise, and while it softened the impact of the last recession, it may just have pushed the pain into the future. Indicators such as negative interest rates hint that we are at the limit of that borrowing – and now we may have to flood the world of lowered demand with oversupply.
Throw in long term low energy prices (perhaps brought to us by the tech disruption horseman) and that adds even more headwind to increased growth.
Maybe economists should be working on financial stability, and quit trying to force economic growth when so much is lining up against it. It’s been 8 years now since the start of the last recession – given historical business cycles another one cannot be too far away.While I am not predicting financial apocolypse, I do think the next one will be painful, perhaps with bondholders being the surprise victim as govenments around the world use strategy from the wrong era.
None of this is new of course. To quote from a copy of ‘Bankers Magazine’ in 1941:
“…like armies always training to fight the last war, our banking system is always merely setting up protection against past experiences.”