Declining labor force participation rates
The declining labor force participation rates were already in play before the pandemic hit as fourth industrial revolution technologies, the digitalization of everything, the fintech revolution and ongoing automation from cashier-less stores, automated vehicles, and fast industrial robot production lines, has meant that humans need not apply.
The declining labor force participation rates in the Fourth Industrial Revolution is a macro trend
Five million jobs by 2020 will be eliminated, according to a 2016 report by the World Economic Forum (WEF).
It was an eerily accurate forecast of jobs destruction bearing in mind that the year 2020 was when the worst health crisis in living memory, the pandemic hit followed by the great global lockdowns, which cost 400 million jobs in the second quarter, according to the UN labor agency.
If humans are no different from horses, in the context of production, then a declining labor force participation rate also implies a global population in decline
The Industrial revolution decimated the horse population. In 1800, Europe’s estimated horse population was 14 million, while its human population was an estimated 150 million, which is 11 people for every horse.
Today’s human population is estimated at 7.05 billion and the horse population is estimated to not exceed 65 million. So, today there are about 108 people for every horse,
Put simply as horses became less useful in production, due to the development of steam engines, then combustion engines, the horse population was greatly reduced.
In short, the first and second industrial revolution reduced the horse population, so could the declining labor force participation rates in the Fourth Industrial Revolution also lead to a fall in the global human population?
Keeping this relevant to investors, declining labor force participation rates, and eventually diminishing population could have a significant impact on portfolios
From a macro perspective, declining labor force participation rates, a jobs crisis, could result in an even bigger ballooning public deficit.
With tax revenues is the decline and more households reliant on state welfare handouts for survival G7 public debt could be about to take-off. UK public debt already exceeds 100% of GDP for the first time since 1963. Moreover, the US federal debt held by the public is expected to hit 98 percent of GDP.
So there is Modern Monetary Theory (MMT) to the rescue as declining labor force participation rates due to the fourth revolution and the pandemic wreak havoc on government revenues
Put simply MMT supports the idea that government spending can be paid for by the creation of money. But this also leads to the debasement of fiat currencies, bearing in mind that while the central banks can create liquidity (fiat currency) at will, they have little or no impact on production. So, with more cash chasing the same amount of goods and services in the economy, in theory, that should lead to monetary inflation.
Here is the link; declining labor force participation rates lead to political instability. MMT bankrolls a broke government so that it can finance Universal Basic Income, which is designed to halt a popular uprising. But that also triggers monetary inflation and capital flights out of weaker fiat currencies into tangible assets, particularly precious metals.
The great gold rally, which I forecasted one year ago, has its origins in monetary inflation.
I continue to remain bullish on precious metals as I see monetary inflation gaining momentum going forward. However, government precious metals confiscations are an investors’ caveat.
Declining labor force participation rates are a headwind on consumption, particularly discretionary spending
So, the stock dividend drought could worsen, the PE ratios will no longer support current stock prices and capital flows will move into safe-haven assets.
US Treasury 10-year bond is a typical place for investors seeking a haven in times of economic turmoil. So, the US 10-year yields could continue to fall as capital flows from short to long-maturity bonds. Eventually, this will lead to an inverted yield curve, a signal of a coming economic recession.
Declining labor force participation rates, and employment crisis also means rent defaults as tenants are unable or unwilling to pay landlords’ rents
But laws are making it more difficult for landlords to evict non paying tenants.
There is already a nationwide eviction-moratorium through December 31 by the US Center for Disease Control and Prevention (CDC) that recently came to light, which would be the broadest eviction ban yet.
This is far broader than the eviction ban under the CARES Act that applied only to renters in properties whose mortgages were backed by the government. Under these eviction bans, renters still owe the rent, but they cannot be evicted for non-payment of rent. But rental properties are usually leveraged. So, this could cause another mortgage-backed security crisis.
Landlords, whether they be small landlords with one or two properties or large landlords with many properties or apartment buildings typically carry mortgages on those properties, so they have to make mortgage payments.
Moreover, in the US many of those mortgages have been bundled into mortgage-backed securities, some backed by the government.
There is a risk that declining labor force participation rates lead to a chain reaction of defaults on rents, then mortgage defaults which then triggers a rolling tsunami of defaults and foreclosures on landlords
So declining labor force participation rates, a job crisis has wide implications for both the economy and financial markets. Ultimately, it could also lead to a declining global population as birth rates decline.
Moreover, the relocation of production from the world’s largest factory, China to the US and Europe is unlikely to lead to more factory jobs, since the modern factory employs more robots than humans.