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Thursday, March 12, 2009

Age Wave Theory: Expect a Long Economic Winter

As if it weren't enough already that Baby Boomers are completely broke, according to Harry Dent and his Age Wave Theory they would have pulled down the economy significantly anyways.

Basically stock markets and real estate values were all primed to dump with or without a cheap credit fueled asset bubble. Because of their sheer number the very force and mass of the Baby Boomers was destined to destroy the very assets they had bid up over all these years when they inevitably had to start selling them to fund their retirements. They bid it up and they will offer it down. There is no other way.

A gigantic credit bubble just amplified the highs and now the lows.

Just ask the Japanese. They've called it The Lost Decade. They tried everything... even stimulus packages... and no, they don't work.

September 18th, 2008 in the post Japan v2.0 , as the Federal Reserve (FED), The European Central Bank (ECB) and the Bank of Japan (BOJ) all made extra funds available to money markets I wrote:

"Basically this action is like taking the defibrillator to a patient and just ‘giving her’… and declaring that this will ‘heal’ the twitching patient… Unfortunately the patient is long dead, and the twitching will stop when the current from the defibrillator stops.

You can’t bring back the dead with a defibrillator.

You can’t bring back dead banks with more liquidity.

We are heading for Japan v2.0.

Think ZERO percent interest rates and think DEFLATION. Think LOST DECADE. Think DEPRESSION. Now make all that GLOBAL.

That is what we have to look forward to."

From the blog Japan Economy Watch:

"The principle focus of the weblog is Japan's long term growth and deflation problem, and many of the posts examine the issue of the sustainability of Japanese public finance in the light of the weak domestic consumption record which appears to be related to the ageing question. Ageing produces a continuing and ongoing rise in median ages due to continuing low fertility and the rapid increases in life expectancy which Japan has been experiencing."

The same has already started to happen in Germany where the "Age Wave" is further along than in North America.

From the blog German Economy Watch:

"The big question which arose concerning the Germany economy in 2007 was whether or not the new found dynamism in German economic activity constituted some form of renaissance, and formed part of a global decoupling process whereby a sustainable recovery in domestic demand was taking place. Analysts on this blog never really accepted this view. The key question and central enigma associated with the German economy is really why domestic demand should have remained so congenitally weak over such a considerable period of time. Since this phenomenon is also to be observed in the two other societies with very high (circa 43) population median ages - Italy and Japan - we postulate that demographics and population ageing processes offer some part of the explanation here. Basically what we can observe as societies move above the 40 median age mark are a number of stylized facts. Weakness in domestic private consumption would be one of these, absence of consumer credit driven property booms would be another, growing pressure on the national debt as the elderly dependence ratio steadily rises would be another, and growing dependence on export growth for sustaining GDP growth would be the central feature of the whole edifice."

The Italians too of course.

From the blog Italian Economy Watch:

"We would like to present some charts which provide background data which we hope will help the first time reader better assess and get to grips with the argument being presented on the blog. In what follows you can find charts for Italian male life expectancy, median age, quarterly GDP growth, inflation, household demand, retail sales, and import and exports growth. Basically this data provides a summary of the argument which we are presenting on this blog, which is that in order to understand Italy's long term and ongoing economic malaise you need to understand something about Italian demography, and it's macroeconomic consequences."

More on Age Wave Theory: The Validity of Age Wave Theory: Harry Dent


Anonymous said...

The solution of course is immigration of young people, eg. from a youthful country like Iran, or Libya, or Brazil: something which the old poverty-stricken bigots will not like, no sir.
But agreed as to the effect of demography on economy: equities and housing were going to slide over the next 20 years anyway, as the boomers cashed out to fund their retirements.
The pig in the python.

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Kosta said...

Nice post, the effects of demographics, and specifically aging populations, are an under-recognized contributor to economic stagnation in many countries (particularly Japan). However, the U.S. does not have a severe demographic problem. Amongst industrialized nations (Western nations & Japan) the U.S. has amongst the highest birth rate and the youngest population. And while the retirement of the baby boomer cohort will prove a challenge, the situation is not dire, or at least not nearly as dire as most European nations

Anonymous said...

Nice topic review..
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