by Gary Alexander
March 5, 2024
On March 4, 1789, 235 years ago yesterday, George Washington was sworn in as America’s first President and the first session of the U.S. Congress was held in New York City, near Wall Street. It was an inauspicious session, as only nine of 22 Senators and 13 of 59 representatives showed up. Over in France, a revolution was brewing, breaking out on July 14, 1789, and when Washington left office, he warned of any “entangling alliances” with Europe. Today, we’re still struggling how to handle those alliances.
Case in point: Eighty years ago this summer, representatives from all 44 Allied nations met and sealed a deal at a ski lodge in Bretton Woods, New Hampshire. According to geopolitical analyst Peter Zeihan, the deal basically said that we Americans would protect you, if you would trade with us. We would incur two big debts – a trade deficit (via our strong dollar) and a budget deficit (to build our defense shield) if you would buy our products, build your economies and be our Allies against any threat, like the Soviet Union.
Today, to paraphrase Lincoln, “Four score years ago, our 44-fathers made a deal. Now we are engaged in a great civil war at home, testing whether that deal, so conceived and so dedicated, can long endure.”
By any measure, it was a great deal for everyone involved, leading to greater wealth and relative peace:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
America is still growing, but the rest of the world is not. The next four biggest economic powers are either in or entering a recession – #2-China, #3-Japan, #4-Germany and #5-UK. Last Tuesday, economist Ed Yardeni wrote: “Both the United Kingdom (UK) and Japan entered technical recessions during the last three months of 2023. Germany is on the edge of falling into a recession. In our opinion, China is in a recession, though the government’s official statistics don’t reflect it.” (From “Is the Global Economy in a Recession?”) He adds, “The global economy is in a funk” (citing his YRI Global Growth Barometer).
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Yardeni argues that China’s recession is “attributable to the huge negative wealth effect resulting from the bursting of China’s real estate bubble and the resulting plunge in the stock market. In addition, China’s demographic profile is aging rapidly. The UK, Germany, and Japan also have structural problems related to the aging of their populations,” with the U.S. alone adding people (albeit slowly, and by immigration).
A “birth dearth” is taking place all over Europe and Asia. The fertility rate of 2.1 births per woman (over a lifetime) is necessary for replacement of the existing population, but the ratio is below 1.25 in several of the smaller, richer Asian nations, like Taiwan (1.09), South Korea (1.11), Singapore (1.17) and Hong Kong (1.23). In Europe, the fertility rate is at or below 1.4; in Spain (1.29), Italy (1.30), Portugal (1.37), Greece (1.38) and Finland (1.40). In North America, Canada is at 1.47 and America is at 1.66. No rich, developed economy on earth seems to be close to replacing its population by natural means alone.
Over 50 years ago (I shamefully admit), I believed Paul Ehrlich’s “Population Bomb” (1968) book and a companion screed called “Famine 1975” by William and Paul Paddock (1967). In my best purple prose of the day, I wrote a booklet predicting “Famine in the 1970s,” proclaiming the rising death rates to come:
Here’s a chart of how wrong young Gary turned out to be:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
I was blessedly wrong, as infant mortality has largely been conquered, and life expectancy has increased by three decades or more since 1950 for more than half the world’s population. I’m thankful I was wrong!
Ehrlich’s Population Bomb implied overpopulation, but today’s population bomb is a “neutron bomb” of slow demographic extinction on the installment plan. In the decade since January 2014, Japan’s head count is down by 3.4 million to 124 million. There are now 51.2 Japanese over 64 for each 100 Japanese age 15 to 64, so fewer than two working age Japanese can support the needs of each retired person.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The Rivers of Germany and America Fuel Efficient Commerce
Perhaps Germany is the most shocking of the European laggards, since it has been the clear powerhouse of Europe for so long, but Germany’s real GDP declined 1.1% (annual rate) in the fourth quarter after a flat third quarter, with its manufacturing sector down 3.9% for all of 2023. The agricultural sector was also hit hard by Europe’s “all in” Green New Deal at a time when Europe banned Russian energy imports.
Peter Zeihan believes Germany’s advantage stems more from its navigable rivers than its reputed work ethic. I would add that its rivers even made it into the German national anthem, “Deutschland Uber Alles.” In the first stanza, the line, “From the Meuse to the Memel” names two rivers, which stretched German borders (to Hitler’s delight) from France to the Baltic States, but even today’s shrunken German nation has more navigable rivers than the rest of northern Europe combined. Another line in the anthem stretches Germany’s border from deep into Swiss and Italian land up to Denmark. Even without those lines (since excised from the anthem), the Rhine (bordering France) and Elbe give access to the North Sea, the Oder (near Berlin) empties to the Baltic, and the Danube (down south) flows to the Black Sea.
As Zeihan points out, today’s Germany boasts about 2,000 miles of navigable rivers vs. 1,000 miles for France, but America takes the gold medal for river running by half-a-globe’s width, with 14,650 miles of navigable rivers, plus the Inter-coastal Waterway, running from the Chesapeake to the Texas border with Mexico. The Mississippi River is the longest navigable river in the world, 2,100 miles up to the Twin Cities, with six major tributaries serving most major industrial states, plus Canada’s St. Lawrence Seaway.
Zeihan also points out that moving cargo by water is the cheapest form of transport: “Modern container ships can transport goods for about net 17 cents per container-mile, compared to semi-trailer trucks that do it for net $2.40,” and road traffic “has an annual maintenance cost of $160 billion” vs. $2.7 billion for U.S. waterways and zero for ocean maintenance, so the “practical ratio of road to water transport inflates to anywhere from 40:1 in populated flatlands to in excess of 70:1 in sparsely populated highlands.”
That’s why Zeihan calls America “The Accidental Superpower.” America has a whole cornucopia of geographical advantages that the world wished they had – and fought wars for centuries to gain.
According to Zeihan (and many others), the Bretton Woods Order is now breaking down, whether Trump or Biden or anyone else is elected this year. Nations (and voters) are tired of the deal and are retreating back to their historic borders to try to go it alone in what used to be called “isolationism,” calling it self-sufficiency. It probably won’t work out well, so nations will likely return to the old trading system.
The Economist echoes this conundrum on its latest cover: “Is Europe Ready?” (Answer: Probably not)
The Economist begins: “Russia is becoming more dangerous; America is less reliable, and Europe remains unprepared.” Basically, Europe relied in Russian energy and American military security while spending their tax dollars on social programs, then replacing their negative natural population growth with immigrants, a volatile formula all around. So, they are in a geographical and demographic trap, caught between two old superpowers. It’s time for Europe to make like a Boy Scout and Be Prepared.
All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.
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About The Author
Gary Alexander
SENIOR EDITOR
Gary Alexander has been Senior Writer at Navellier since 2009. He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks. For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.
Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s. He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division. Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander
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