There are plenty discussions around the world about different generations. All know we have baby boomers who are just about to retire and everybody knows Millennials (Z – generation – I do not split Millennials vs Z-Gen. For me these are the same. All born in late 90’s are Millennials (often called Z-Gen), so I use those names interchangeably ) who playing games, have social problems and was born in late 90’s so the beginning of the credit cycle, where business cycle has been wiped out and full inequality momentum kicked in. Economy will be creating more and more less powerful generations until it will clean itself.
I won’t even try to characterise all type of generations, but I’d concentrate on the moment what happened with Z-generation and how they are going to transform the economy cycle towards inflationary environment, as this blog is strictly dedicated to economy cycle theory.
Somewhere I heard that Millennials are the first generation in a history that is statistically
- More “stupid” than their parents – saying “stupid” means, they are missing tons of soft skills required for real life, usually less educated, they can’t respond to problems, they live in “roaring tens” where the prosperity and free money are growing on the trees, so they get used to prosperity for nothing.
- They are the first generation that will earn LESS than their parents.
If you have children and they were born between 1990-2000 you probably see that. At the end of disinflationary cycle where to 1% got 40% of wealth and we more and more look for wealth distribution this way :
- 2016 – 61 billionaires control half the world’s wealth
- 2017 – 43 billionaires control half the world’s wealth
- 2018 – 26 billionaires control half the world’s wealth
So face a situation you are a young person having in mind 99% of the society is getting less and less and less. You hear all over the world how capitalism is beautiful, everybody is riding Ferrari, but you have to live with your parents, because you just can’t afford to grow up and you can afford Ferrari only in computer games. Your parents (gen X,Y) born 60-80’s seems to be better educated and have better jobs that probably gen Z will ever had. There is not a clear way out of this mess. Capitalism promotes mostly financials and not hard working from a productivity point of view. So what Millennials can see is a virtual reality, where life is better and simpler. To be clear I’m not trying say all Z-gens are behaving like this, but this generation is clearly touched by tech-overcapacity and overload.
Not far you need to look to find Alexandria Ocasio-Cortez – born in 89′ calling capitalism “irredeemable” system – and she is RIGHT. Most of current 20-30 years old people do not see any benefits from capitalism, but people can remember 2-3 years back, so everybody forgot 2008, forgot 1929, forgot 1939-1945 and forgot oil crisis 1973. Again this time is different, it’s not but if you push capitalism too far you can observe how people will revolt and try to response with the only one for now solution – socialism.
When you see such topics how young powerless generation can’t find proper jobs and earnings in collapsed economy after 2008 it shouldn’t surprise you at all. Bank of Japan has already bought over 80% of Japanese ETFs and they are the top 10th owner in 50% of Japanese companies. During the next recession they will be top 3 in 80%? Who knows but that is nothing else than nationalizing the economy and switching back to socialism one more time, if you like it or not and no matter how you try to stop it, all roads lead to the change.
Always look at this chart and ask your self where is the limit in capitalism for the top 1%… It is till the economy will boil into big depression. Why? Because capitalism needs consuming. How bottom 90% can consume more if they all the time being robbed from wealth?
In a moment baby-boomers will have to take away their retirement plans (or lose everything in depression), the same time Z-gen has no earnings, no jobs, just dreams, but they can vote and very soon they’ll be the biggest voting group, or they even are :
So like in the previous economy cycle. Baby-boomers (post II world war generation) was growing in inflationary socialism, so they had enough power to change the system to democracy and disinflation, now Z-gen has enough power to switch it back again. As capitalism (disinflationary period) is based on consumption it is easy to see how next generations entering in the real life are getting poorer and poorer.
And earn less and less (“Percent of children earning more than their parents (by birth year and parent income)”
So as they earn less and less, the homeownership should slump a lot :
The top population growth (Baby-boomers) was around 1950. They lived in socialism and inflationary environment till 1980. Once the situation became better (it always does on break-even points: inflation(socialism)/disinflation(democracy/capitalism) and vice-versa) there is a boom for having kids.
Last transformations occurred : 1929 (deflation), 1949 (inflation), 1980 (disinflation). Just take a look at the chart below how big jump in US Population growth strikes just around cycle transitions (1926, 1949, 1990). If we take a look where the last boom in the disinflationary cycle appeared it is around 1990′, so it seems, 10Ys after cycle turned into capitalism (disinflation). The previous disinflationary cycle and top of birth around 1926 force the children to go through II world war. How the economy will deal with 1990+, we’ll find it out in the future, but today this is this generation that started to feel the pain from capitalism didn’t even know what socialism really means because they see it as a miracle cure for capitalism as they don’t benefit from it at all.
I am a big fan of a theory that economy creates the changes if you like it or not, and we’re going around in full economy cycles. 40-50Ys disinflation and 40-50Ys inflation, even generations are being shaped based on the economy cycles what I’m trying to show. Remember how typically capitalism ends :
- Financial crisis – first symptom of debt saturation problem
- Economy rescue – no limit in stimulus and money printing aka QE aka Stimulus Packages – biggest and last market bubble fueled by keeping rates too low for too long injecting money until economy is overstimulated and dies completely mostly due to lack of consuming on huge inequality gap.
- Overcapacity runs to levels not seen in a history (like, 2 electric vehicles car manufacturers 20Ys ago, 100 about 10Ys ago, 500 today and the estimation of 1000 in the next 5Ys). As overcapacity kicks in the competition is so strong they need to cut wages and take more debt in order to flow on the market trying to be profitable, and being totally harm on any type of shocks. This debt is available due to keeping rates too low until golden rule supply/demand will clean 90% of those companies.
- 1% wealthiest benefits the most from stimulus, as wages are decimated due to overcapacity. 1% can benefit these easy money, because wealth concentration is so strong they don’t need fully to find something productive the same time paying employees. They can waste money chasing projects that are by default a failure or burn them by financial engineering to lift up wealth concentration even further.
- Populism and socialism raise and the last generation which was born at the end of the disinflationary cycle leads the change (the raise of Adolf Hitler).
- Massive waves of bankruptcies as demand for goods fades due to debt saturation (if 90% got poorer by default – how they can consume more when lower rates and stimulus promote bigger inequality gap by default?). The change has been forced and implemented. Capitalism didn’t work.
Now we’re trying to match MMT theory. MMT is nothing more than again pure socialism. Central Banks try to rescue the economy from deflationary hole promoting MMT (Modern Monetary Theory aka QE4People), but a question appears if decimated 90% of society with poor earnings can obtain free money doing nothing – why they should work? MMT is being slowly implemented, so why young socialist can’t say money is growing on the trees? If you can print QE and give free money to money losing corporations why you can’t give it to people for free? Inflation? We don’t know what is that (until you will). If you take a sample of 500 people and give them 1000$ each, doing tests in a small town for 1-2 years, you’re going to say, nothing wrong happened – inflation is not raising, people keep their work – great solution. From the other hand if you know this money is temporary and still you have tons of debt and you can be fired from your poor work, you don’t change your behaviour much, but based on this theory, so we announce the potential success of permanent MMT globally.
We all know negative rates are not working as it should, Central Banks are scared to death, because academic theory works until it won’t. FED can print money but they can’t force people to consume (the blood of disinflation). Same time the academic theory tells that wages should grow when rates going down, but as I presented a chart there is a point in the economy where people’s psychology takes the lead over the academic economy theory and it’s a start of the credit cycle which replaced business cycle :
All CBs begging velocity of money to raise as their models show people should spend more till infinity once the rates went down. You see this magic 2000 credit cycle? Open the FED Fund Rates and find what is the level of interest rates to be kept so the real economy should grow in a productive way – sustaining middle class. But as I told before this is also a theory, because economy cycles will lead us from one extreme to another extreme.
and this… You’re seeing the moment of the magic 2000 year, where business cycle has turned to credit cycle (top of velocity of money = top of middle class wealth), and magic 2008 year, where Millennials had to live with their parents as bottom 90% of society is very fast robbed from wealth?
The data suggests Z-gen won’t be millionaires. Easy money from being a youtuber to being an influencer is spreading. The cult of consuming is well rooted in this generation. As I’ve been saying, you had the greatest chance to become a B’naire$ when the disinflation period kicked in. So it was 1980 (let’s say you had to be born around 1950-1960). You still had a chance till business cycle was replaced by credit cycle (born around 1970-1980). But when you were born around the credit cycle start (2000) you had almost no chances for that. You can’t fight with the overcapacity when disinflation forces wages to drop for bottom 90% of society. This article also should not surprise you. We notice record amount of depression around the society born between 1990-2000 :
It seems so easy money and lack of savings and so easy capitalism do not help Z-gen to move towards their financial freedom. It’s much harder than anybody thought :
Again this article clearly tells this generation from the psychological point of view is completely not prepared for future living. Their antisocial behaviour exacerbated by depression is a symptom of overcapacity in tech technologies (isolation) which went too far away created tons of useless applications, that in a future probably our Z-gen won’t be able to use toilet without a help. That is of course some exaggeration to show a problem how brain is being released from thinking on almost every aspect of Z-gen live. Not-solving key problems, not-having kids and being susceptible on populism which is on a rise – these are key symptoms economy has created one more time, the lost generation, which will have to force the deflationary hole as economy left them with 2 left hands
Remember, our not-prepared Z-gen needs to face risks from last phase of economy cycle , same happened in late 1929. Most of those risks are typical psychological. If I can take more money for me, why I should share my money with others (1% will say)? Cars and houses will be selling till infinity (people’s thoughts). Stock market and financials are key drivers of the wealth (disinflationary low-rates environment). Government needs to stimulate the economy (because the economy died 10 years earlier by first debt problems). In 1929 lost generation was sucked by disinflationary mass-production technology and first electric devices overcapacity – because all though those “break-even” technology products will be selling till infinity accompanied by monetary easing. It didn’t happen. Demand dried up as bottom 90% couldn’t afford to buy more same things and problems arrived. Now we got sucked by the disinflationary Internet technology and overcapacity related to that. The disinflationary technology is great, until we have too much of this technology leading the disinflation.
Let’s have a definition. If a company can’t persistently earn money it means the business model is broken and we can say – this overcapacity created by easy money kept those companies alive artificially. Now, remove each such a company or sector from your mind and think how real technology business should look like to be productive.
So the problem appears where overcapacity reaches too far in current disinflationary technology (The Internet in our times), because going too far eliminates soft skills from the leading generation so in our case Z-gen (social media, lack of relationship, can’t find proper jobs, depression, stress, can’t solve simple problems, living in an environment where everybody is winning (1%), but not me) and leaving them naked for deflationary unload. Economy and human nature created another weak link in the chain so they can’t defend from inevitable. Why overcapacity eliminates soft skills? Because the brain requires constant stimulus and challenges. If the technology overcapacity takes all challenges, you are totally screwed.
It’s like an energy rule in physics. Each energy tends to go to zero. It’s easy to drop a ball from 10th floor, but it’s hard to bring the ball back to 10th floor. Thinking and solving problems are really painful, try to read a book after Internet session. Our brains are switched to different type of thinking. We have to accumulate lots of short headlines, but have zero deeper knowledge how to match them. After reading lots of headlines, try reading a book – first 10-20 pages you have no idea what you read. Later brain slowly tries to accommodate what is really painful process, so if it’s painful why I should think?
So in general we have hyped Z-gen not prepared for any shocks, mostly they are not prepared even by their parents because we’ll live in prosperity forever and hard to prepare your kids how to solve problems where tech & internet & cloud attack you from each side and life is totally unproblematic. We have no children who might replace the society (debt levels matter). We have record level of overcapacity everywhere, negative rates, and Japanese economy has been nationalized in 50% now. We have record levels of zombie companies which are not profitable and this not-profitability is raising. We have pension funds involved only in financial assets , chasing yields in a negative rates environment, so CDOs, levereged loans are the key instruments to be played. They need to risk a lot in order to get a proper return until they’ll be wiped out.
American culture and society underwent a period of great change between 1910 and 1929. A better economy had led to a new consumer society. There was a huge amount of advertising in cinemas and on the radio. Records were sold very widely. Jazz music and its modern and daring dances became very popular among young people, and women started to smoke and live a much ‘freer’ life. This was the era when sporting heroes became rich and famous and new fads became popular, such as standing on top of a pole or goldfish-eating contests!
Education is not giving you any right to get higher benefits unless you got it in the beginning of the cycle – 1980. You have to have a degree in McDonalds to be a restaurant manager, maybe in a moment you’d have to have an MBA there. You can see how higher education is depreciating. That is why now it’s better what skills you learnt by yourself. I think it’s more valuable instead of Harvard’s “How to manage luxury brands” (which are collapsing btw), or “Church Management”.
And should be even worse. Why?
If an inflated housing market on low rates removed their salaries and employment and push money towards asset inflation benefits 1% this is a clear answer economy is working hard to remove from the people all skills until it will unload the deflationary trap. Really hard to show children how great capitalism is if they just can’t even touch it and probably will never touch.