“IN THE MODERN WORLD, THE AGE STRUCTURE OF A POPULATION HAS MORE IMPACT ON ITS PROSPECTS FOR PROSPERITY AND STABILITY THAN ANYTHING ELSE.” ~ Jack A. Goldstone, Author, American Sociologist, Political Scientist, and Historian

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Demographics and debt creation are the foundations of global demand and, consequently, economic growth and indeed, inflation. Historically, population growth fuelled demand for goods and services, stimulating economies. However, a key demographic shift is taking place: declining fertility rates are falling well below replacement rates. A long cycle, global trend with potentially dire consequences.

According to the World Bank, Japanese fertility rates first dropped below replacement rates in the 1970’s, followed by Europe in the 1980s and the United States more recently. Globally, with the exception of Africa, every major region now experiences fertility rates below this replacement level. The result is inevitable: we are on the cusp of a shrinking labour force, as more people retire or leave the workforce than enter it. This demographic imbalance threatens future demand and economic growth, increases the risk of deflation and exacerbate cyclical dynamics.

To support demand, governments have been printing money and increasing spending to unsustainable levels. All G7 countries are projected to run budget deficits this year and next, while government debt-to-GDP ratios, according to IMF data, have soared well beyond 100%. We expect it to reach 140% by the end of the decade.  A recent United Nations report underscores the crises, noting that 3.3 billion people live in countries where interest payments on debt surpass what is spent on essential services like healthcare and education.

Given these demographic headwinds and the rapid development of AI, sustaining demand while maintaining fiscal and monetary discipline seems increasingly unlikely. This presents a difficult choice: governments are compelled to pursue fiscal excess and accommodative monetary policies to sustain growth and avoid deflation, or face potentially unpalatable tax reforms that no one appears willing to even consider.

The future of inflation, therefore, looks volatile. On one hand, secular deflation looms as high debt levels and economic pressures suppress demand. On the other, periodic bursts of inflation will occur as excessive money printing and debt creation take hold in what we define as the “Fiscal Age.” This pattern echoes the late 19th and early 20th centuries, marked by extreme inflation volatility, demographic shifts, rapid debt accumulation, rising inequality, and the emergence of new global powers.

In this environment, AI and disruptive technologies that enhance productivity are poised to thrive, as are real assets and stores of value that can withstand fiat currency devaluation. Yet, without meaningful reform, reversing the trends of growing inequality and declining living standards will be exceedingly difficult.

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"DEBT IS A USEFUL TOOL IF USED PROPERLY, BUT DEMOGRAPHICS DETERMINE THE REAL CHALLENGE AHEAD — AN AGING POPULATION CREATES HIGHER COSTS FOR HEALTHCARE AND PENSIONS, WHICH ARE LONG-TERM DEBTS WE MUST MANAGE CAREFULLY." ~ Paul Krugman, Economist & Nobel Prize Winner

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