Skip to comments.Destiny Is Demography (The Jig Is Up)
Posted on 09/17/2011 8:08:36 PM PDT by blam
Destiny Is Demography
By Bill Bonner
09/16/11 Baltimore, Maryland The San Francisco Federal Reserve bank came out with a gloomy forecast last month. Its analysts said that stocks were likely to earn paltry returns over the next 10 years. The reason cited was simple enough; stockholders dont live forever.
Demography is destiny, said Auguste Comte. It works the other way around too, he might have added. If they thought they were going to live longer, Americas most ubiquitous age cohort the baby boomers might continue to buy stocks. Instead, the cold hand of the grave is on their shoulders and on the whole economy. The boomers are retiring at the rate of 10,000 per day over the next 18 years. They will sell stocks to finance their remaining years.
Old people have always been a drag on an economy. Migrating tribes left them behind. Eskimos put them out on the ice. Old people generally bowed to their fate with good grace. In times of famine, for example, they stopped eating so the young might live.
Mortality has doomed the stock market, says the S.F. Fed. P/E ratios will likely be cut in half. Investors are unlikely to see their stocks return to 2010 levels, says the report, until 2027. And this assumes that US companies will continue to grow profits as they did since 1954. Not very likely. Because democracy, energy, and financial quackery are destiny too. Jointly and severally, they are responsible for the biggest financial debacle in history.
This week, Deutsche Bank came out with a report of its own. It, too, is confident that the Golden Age 1982-2007 is over. In its place is a Grey Age. Instead of the nominal 12.8% gains of the Golden Age, investors have gotten returns of 2.8% per annum for the last 4 years. Deutsche Bank expects stock market investors to lose about 10% of their money in real terms over the next 10 years, while the economy goes through 3 recessions!
But what would you expect? Everything droops. For the last 3 or 4 centuries the winning formula for developed economies and their governments has been simple: More energy. More output. More people. More credit. More promises. This formula has been so effective for so long people began to think it was destiny itself. Its not. Instead, it is slave to destiny not its master.
By 2007, the slave was put in his place. The business cycle turned sour. Native populations in Europe and Japan are falling. Energy use per person in the developed world has leveled off. Private sector credit is shrinking. So is real private sector output.
The feds responded to this challenge as they had to every post-WWII slowdown. They added more more money, more credit. The government itself spent more money and used more energy. But the economy did not react in the old manner.
An obvious reason: people are no longer as young and sans-soucis as they used to be. A young mans eye may be drawn to fast German cars or slick Italian suits. But an old man can barely see at all. The baby boomers no longer roll their joints; they rub them. And they are no longer the source of an economic boom; now, they are the proximate cause of the bust.
But theres more to this new Grey Age than demography. People too are subject to the law of declining marginal utility. They wear out. But so do even the most enduring and impressive economic trends. There were only 450 million people on the planet in 1500. It took 99,000 years to reach that level. Then, over the next 5 centuries the population soared 10 times. Today, it is hard to find a parking place in any major city. How was such a big jump in population possible? Destiny was demography. With ready, cheap energy at hand, man could grow more food. And then he could ship it all around the world. And he could put his talents to work making more and better machines which would vastly increase his output and his standard of living.
But the Machine Age ages too. The first tractors appeared more than 100 years ago. They may have increased production 10 20 100 times. Since then, improvements have been incremental, not revolutionary. We have bigger, faster, better tractors that use more energy than ever.
Meanwhile, energy itself came to be more expensive. When the price of energy rose in the 70s, the 30 glorious years that followed WWII were soon over. Hourly wage rates stopped increasing and have not gone up since.
Yes, there is plenty of energy around. But it is net output that you get from energy that counts, not the raw output. If a gallon of gasoline costs $5 it must produce more than $5 in additional output or the economy gets poorer. As the price rises fewer and fewer new energy apps pay off.
Likewise, credit is subject to the law of declining marginal utility too. In 1950, an additional dollar of credit added about 70 cents to GDP. By 2007, the US economy was adding more than $5 of debt to produce a single new dollars worth of GDP. Now, the feds new credit inputs produce negative real returns.
The jig is up. More no longer works.
As we boomers age, we are not leaving the workforce in the same numbers as our predecessors did. We are working years longer than usual and will continue to do so out of financial need. My 401K is stagnant and I cant expect SS to be there.......
This strikes me as an overly optimistic prediction.
I retired at age 50...17 years ago.
You are the exception.
I’m 56, and dont plan on retiring any time soon. Same with my co-workers. Of course, living in Florida makes it easier........
LOL. I'm just north of the Florida state line in Mobile.
I’m in Ft. Walton Beach!....Howdy, neighbor!.......
Indeed. This is why I cashed out in 2008. Peak of the Boomers prime spending ages passing through.
Demographics is destiny.
The real solution is the following.
1. Cut taxes.
2. Cut spending.
The only way you are going to see kids having kids is if you get rid of the following.
1, the prices of homes have to fall back down to market demand. Kids can’t buy a house and raise a family because houses are way too expensive.
2, taxes have to be cut, so that people can actually work and SAVE money.
3, eliminate pre requirements for jobs that aren’t necessary to do the jobs. Creeping credentialism makes kids take longer to actually get productive jobs.
4, eliminate the public sector unions.
5, Why does university cost so much and take so long? It’s a huge burden on kids these days.
All 5 of these things are going to go away, because they are killing America.
We already have property tax exemptions for seniors........
Oh, please. This is just the “Culture of Death” turning on the Baby Boomers, as they’ve gotten “too old.”
Also, those who are old enough (ahem) to remember Carter remember the “new normal” of lowered expectations and energy misery that the press blathered about, just like this article. This piece only proves that History repeats itself - or rather, that lazy hacks can plagiarize 35 year old articles when nobody calls B.S. on them.
There’s nothing wrong with this Carterized economy that a little Reaganomics won’t cure.
The Hispanic adult-care workers (not all Hispanics) will be quite happy to have your folks sit in their own sh!t for days on end; breed or die!
We do too but, you have to be on the verge of poverty to qualify. It's age and income.
It seems if all these retirees are selling stock to finance their retirement there should be a huge influx of capital gains tax money flowing to the government
A mere 17 years.
After the stock market (DJIA) peaked in 1929, it didn't return to that level for another 25 years.
When you're old, you pay way less taxes when you cash-out.
Think of the volume. Besides after Ostupid gets done those rates will be much higher.
bump for later reference