Fewer babies born per capita are pushing the U.S. toward zero population growth. This began happening in Japan around the time it moved from an era of rising prices to one of price stability or very mild deflation, despite repeated “quantitative easing” by the Bank of Japan. Bloomberg reports (LINK):
Recession Left Baby Bust as U.S. Births Lowest Since 1920
The U.S. birth rate fell to a record low last year…
The country’s birth rate fell 8 percent from 2007 to 2010, according to a Pew Research Center report… The decline continued last year to the lowest point since records began in 1920…
The U.S. birth rate in 2011 was 63.2 per 1,000 women of childbearing age, according to preliminary numbers. That’s down by almost half from a peak of 122.7 in 1957 during the postwar baby boom. The rate steadily fell before stabilizing at 65-70 births per 1,000 since the 1970s…
In Japan, where one in four people will be 65 or older by 2015, birth rates began dropping when the economy began booming in the 1970s.
Livingston, the Pew study’s author, said the decline in fertility probably will slow as the economy rebounds, though rates won’t climb back to the historic highs of the middle 20th century.
The comment from Ms. Livingston that birth rates likely will increase as the economy rebounds is not a direct quote, but exemplifies the zeitgeist that “the economy” (an abstraction) will “rebound” (assuming it really has). This is the opposite side of the coin that “everyone knows” that ZIRP was temporary and could not last. But here we are, with the Fed promising that ZIRP will last at least a total of seven years from its late-2008 inception. If the combination of a fresh recession and the appointment of the “dovish” Janet Yellen to succeed Ben Bernanke as Fed Chairperson comes to pass, people may look at the demographic trends and finally accept the thesis that the U.S. was following the Japanese example- but with higher price inflation, amongst many differences.
Another macro theme that points in that same direction regarding the general price level is that now that President Obama has been re-elected, presumably the U.S. is going to drastically tone down its military role in Afghanistan. At that point, the U.S. will be more or less at peace. Except for the aftermath of the Viet Nam War, when demographics were robust, every time the U.S. has been at peace, stable or declining prices has been the norm.
There are a number of trends that are pushing prices lower. The tech revolution is one. This goes far beyond the Internet. Robotic manufacturing and 3D “printing” can drive production costs much lower.
Savers and investors have often fought against or simply refused to “believe in” the evolving trend in interest rates, aka the bond bull market that is the least publicized truly major long-term, massive bull market I have ever heard of. It’s amazing to think that at 14% interest rates, a zero-coupon Treasury bond in 1981 would have cost about $2 and matured last year at $100. That’s a 50X return, exceeding the return from stocks, with no risk and no need to ever watch the price. (The return would have been even higher if every 5 or 10 years, the investor had sold the bond and bought another 30-year bond, and that might be the better comparison with stocks.)
While little in the financial world would surprise me at this point, it appears plausible to think that at some point, we could see a 2% yield on the 30-year Treasury bond and a 4% dividend yield on the S&P 500 index.
Investors may be well-advised to watch demographics along with other macro trends that have profound effects on price levels and economic activity and that may not have fully been discounted by the financial markets.