I had the opportunity earlier this week to sit down with the IIEA and Dan O’Brien to discuss the decline in global birth rates, population ageing and what it all means. Thanks to the IIEA for hosting me.
Read MoreI have a few things on my mind this week. We have to talk about Japan and the BOJ. Last week’s decision by the BOJ to raise its deposit rate above zero for the first time in 17 years cements Japan and its central bank as a counter cyclical indicator, of sorts. While major central banks have spent the majority of the past 18 months raising interest rates, the BOJ has stubbornly resisted calls to exit NIRP, despite rising inflation. Now that the ECB, BOE and Fed are on the cusp of lowering interest rates, the BOJ is pulling the trigger on a hike. The BOJ’s decision raises a number of fundamental questions for global macro traders and thinkers. The most obvious one is whether the twin inflation shock from Covid and shifting geopolitics is now pulling major developed rate markets out of their ZIRP/NIRP funk. And if they are, does this mean that the idea of long-term gravity of rapidly ageing population weighing on inflation and interest rates is wrong? Is Japanification now reversing? I am sceptical, but if Japan manages to escape, it would go a long way to falsify the idea of a determinist link between ageing and disinflation.
Read MoreThis is the final chapter in the first part of my long-running demographics project. In the previous chapter I described the quantum effect of fertility, which hypothesises a negative relationship between fertility and rising incomes as parents substitute quantity for quality in their reproductive decisions and child-rearing. But can the quantum effect explain why birth rates in one country after the other appears to be stuck below the replacement level, and why global fertility will soon drop below that same level? The answer is no.
To understand current and more recent post WWII global fertility trends—broadly since the 1970s—we need to introduce tempo effects to the analysis. Tempo effects describe the tendency of women to postpone the timing of their first child. By mathematical logic, prolonged tempo effects can drive significant population ageing, but a more fundamental question is whether birth postponement also has a lagged effect on quantum, or more precisely, cohort fertility. This chapter discusses these question in the context of the hypothesis of a Second Demographic Transition, SDT, and presents a number of case studies to explore the specifics of recent fertility trends in key countries and regions. The chapter finishes by discussing the idea of a fertility trap, and whether the increasingly accelerating decline in global birth rates are a problem, drawing on the recent polarisation in the debate on this issue.
Read MoreFinancial market pundits are a bit like dogs chasing cars; they wouldn’t know what to do if they caught one. And so it is that after trying to figure out whether the economy and markets would achieve a soft landing in the wake of the post-Covid tightening cycle, no one quite knows what to think now that the soft landing appears to have arrived.
Let’s list the key requirements for a soft landing.
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