Welcome to Demographics School
presented by
Rodney Johnson
Dent Research
Survive & Prosper

Boom & Bust

Boom & Bust Elite

HS Dent
Independent Economic Research Company

Forecast economic change based on three key tools:
1. Demographics and demographic trends
2. Predictable consumer spending patterns, and
3. Technological innovation acceptance rates

Economics Have Two Levels
Macro Economics – Large trends
Micro Economics – individual choices

Macroeconomists are wrong about big things
Microeconomists are wrong about lots of little things

Economics Relies on the Rational Man Principle
Each consumer will make a rational choice when faced with a trade off in his or her personal situation.

Think of all the decisions you have made. Think of all the decisions you see others make.

We’re screwed.

Economic Change Depends
on the Herd
Figure out why people do things.
Find the main source of economic and emotional pain in people’s lives.
What is driving their decision-making, which we know to be irrational?

Kids.

The corallary –
Raising children is painful and makes us do stupid things.

What You Will Learn
Background of economics

The sources of our research

The statistics involved (good and bad)

What the Average American looks like

Three main tools of HS Dent research – demographics, predictable spending patterns, technology innovation and acceptance

What lies ahead

What You Will Be Able To Do
Describe how modern, industrialized economies work

See the next economic “season”

Estimate changes to businesses, investors, and even countries

Highlight the opportunities and risks in the next 3, 5,10 and 20 years

Economics
Malthusian Economics

Classical Economics

Keynesian Economics

Austrian School

Malthusian Economics
Scarcity

Current technology

Population (crowd-out)

Classical Economics
Input of Labor

All inputs are incremental

Always moving toward full employment by shifting inputs to where needed

Keynesian Circle

Keynes’ Animal Spirits
The colorful name that Keynes gave to one of the essential ingredients of economic prosperity: confidence. According to Keynes, animal spirits are a particular sort of confidence, "naive optimism". He meant this in the sense that, for entrepreneurs in particular, "the thought of ultimate loss which often overtakes pioneers, as experience undoubtedly tells us and them, is put aside as a healthy man puts aside the expectation of death". Where these animal spirits come from is something of a mystery. Certainly, attempts by politicians and others to talk up confidence by making optimistic noises about economic prospects have rarely done much good.

Economist.com

Components of GDP
C + I + G + R

Consumer consumption
Investment by business
Government spending
Net exports (exports minus imports)

Keynesian Components
of GDP
C + I + G + R + GRRR

Consumer consumption
Investment by business
Government spending
Net exports (exports minus imports)

LIONS AND TIGER AND BEARS! (Oh my!)

Basics of Hayek
(Austrian School)
Free markets allow best allocation of resources
Government intervention (interest rates and other monetary policy ) causes mal-investment
Those mal-investments must be worked out of system over time
It is the BOOM that should scare you!

Mises Institute
Hayekian Triangle

The Federal Reserve

Why Does the Fed Exist?
Response to bank panic of 1908
End regional currencies
Stop runs on banks

Amended Monetary Act 1913
…the Fed "shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates."



www.federalreserve.gov
www.federalreserve.gov/kids

Federal Funds Target Rate
2003- November 2012
Data Source: Federal Reserve, 2012

30-Year, 10-Year, and Fed Funds
1988 - October 2012
Data Source: Federal Reserve, 2012

Federal Reserve Balance Sheet
2007-2012
Data Source: Federal Reserve, 2012
In Trillions
Before Financial Crisis
First Response to Crisis
QE 1
QE 2
QE 3
Announced

Federal Reserve Balance Sheet, Detailed View, 2007-2012
In Billions
Data Source: Federal Reserve, 2012

Fed Actions
Lower short term interest rates
Inject liquidity by purchasing illiquid assets
Long-term Security Asset Purchase
(QE1, QELite, QE2)
Operation Twist
QE3

VIDEO
Chris Martenson,
Crash Course
Money Supply & The Fed

What About Gold?
Held to $20.67/oz. from 1860s through 1933

Made illegal to hold gold personally in 1933

Moved to $35/oz. under Roosevelt

Remained until 1971 when Nixon closed the Gold Window

Legal to hold gold again in 1976

Gold, Average Annual Price
1900- April 2013
Data Source: World Gold Council, 2013

Why Gold Will Not
Become Currency
Everyone would have to adopt at same time or risk ruinous rise (see Swiss)
Removal of lever for adjusting business cycle (prices versus currency value)
Loss of control on the part of government