[Brian Kopp DPM]

ping

[the invisib1e hand]

eat more possum!

[John Valentine]

The greatest threat facing mankind is... ISLAM

[Wildbill22]

The greatest threat to mankind? His own Altruistic good intentions.

[chris37]

The greatest threat facing mankind is corruption, dishonesty, greed, and lust for power and control over other men.

[Chainmail]

Hey!

I've done my part: four kids (that I know of) and two stepsons, The rest of you need to get hot.. eat oysters or something..

[SumProVita]

REALLY good post with substantive information.

;-)

[narses]

+

Freep-mail me to get on or off my pro-life and Catholic List:

Add me / Remove me

Please ping me to note-worthy Pro-Life or Catholic threads, or other threads of general interest.

[Brian Kopp DPM]

Ping

[MrEdd]

You and I agree on this one.

[wagglebee]

Moral Absolutes Ping!

Freepmail wagglebee to subscribe or unsubscribe from the moral absolutes ping list.

FreeRepublic moral absolutes keyword search
[ Add keyword moral absolutes to flag FR articles to this ping list ]

[wagglebee]

You guys need to read this.

[MtBaldy]

World population is 7 billion and growing at about 1.1%. How does that figure into your theory? I’m not volunteering mind you but I think we’d all be better off if about 2 billion people vanished.

[wintertime]

Because the greatest threat facing mankind is the general failure of mankind to reproduce:
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Failure to reproduce is merely a symptom of increasing godlessness in the culture.

Well? The above ( failure to reproduce) is the result of godless, socialist-entitlement schooling and the increasing immorality of our nation's population.

If we were to shut down, **permanently**, our nation's godless government owned and run socialist schools, and make available to every child in this nation private schooling that upheld Judeo Christian belief and our nation's founding principles, guess what?

We would have more marriages at younger ages, fewer divorces, and **MORE** kids!

Therefore:
I see government owned and run socialist schooling as our nation's **most** serious threat. It is such a threat that I doubt freedom will survive another generation of this godless indoctrination. I feel sooooo strongly about it that recently I have made a decision: I WILL NO LONGER HAVE A GOVERNMENT TEACHER FOR MY FRIEND!

[surroundedbyblue]

This is great!! Thanks!!

Now, find me some more hours in the day so that I could actually read it all! Or just give me the Cliffs notes version when we have dinner in Feb.

[Bellflower]

First and foremost we must turn to The Living God through His precious Son, Jesus Christ. The LORD promised to multiply Abraham. We Christians are the seed of Abraham through faith in his seed, Jesus Christ. We have been grafted in. He will multiply us providing that we are serving Him.

Not only should we be multiplying through natural birth but also because we are leading multitudes into the saving knowledge of Jesus Christ. Believers must get serious about The LORD and His calling on our lives. The time to live for ourselves, filling our lives with most everything but God, is over. We have sowed everything but the seeds of faith towards God's Word and we are reaping corruption. Political, economic, military and every other problem that this Country is facing is the result of our keeping The LORD out of His rightful place, the center of our lives. If we, as a people, do not come to grips with this we are over, but if we do only The LORD knows the blessings He has in store for us.

__________________________________

Gen 22:17 That in blessing I will bless thee, and in multiplying I will multiply thy seed as the stars of the heaven, and as the sand which [is] upon the sea shore; and thy seed shall possess the gate of his enemies;

Gen 22:18 And in thy seed shall all the nations of the earth be blessed; because thou hast obeyed my voice.

__________________________________

Hbr 6:13 For when God made promise to Abraham, because he could swear by no greater, he sware by himself,

Hbr 6:14 Saying, Surely blessing I will bless thee, and multiplying I will multiply thee.

_________________________________

1Cr 2:9 But as it is written, Eye hath not seen, nor ear heard, neither have entered into the heart of man, the things which God hath prepared for them that love him.

[Brian Kopp DPM]

Demographics & Depression

David P. Goldman

Three generations of economists immersed themselves in study of the Great Depression, determined to prevent a recurrence of the awful events of the 1930s. And as our current financial crisis began to unfold in 2008, policymakers did everything that those economists prescribed. Following John Maynard Keynes, President Bush and President Obama each offered a fiscal stimulus. The Federal Reserve maintained confidence in the financial system, increased the money supply, and lowered interest rates. The major industrial nations worked together, rather than at cross purposes as they had in the early 1930s.

In other words, the government tried to do everything right, but everything continues to go wrong. We labored hard and traveled long to avoid a new depression, but one seems to have found us, nonetheless.

So is this something outside the lesson book of the Great Depression? Most officials and economists argue that, until home prices stabilize, necrosis will continue to spread through the assets of the financial system, and consumers will continue to restrict spending. The sources of the present crisis reach into the capillary system of the economy: the most basic decisions and requirements of American households. All the apparatus of financial engineering is helpless beside the simple issue of household decisions about shelter. We are in the most democratic of economic crises, and it stems directly from the character of our people.

Part of the problem in seeing this may be that we are transfixed by the dense technicalities of credit flow, the new varieties of toxic assets, and the endless A­iterations of financial restructuring. Sometimes it helps to look at the world with a kind of simplicity. Think of it this way: Credit markets derive from the cycle of human life. Young people need to borrow capital to start families and businesses; old people need to earn income on the capital they have saved. We invest our retirement savings in the formation of new households. All the armamentarium of modern capital markets boils down to investing in a new generation so that they will provide for us when we are old.

To understand the bleeding in the housing market, then, we need to examine the population of prospective homebuyers whose millions of individual decisions determine whether the economy will recover. Families with children are the fulcrum of the housing market. Because single-parent families tend to be poor, the buying power is concentrated in two-parent families with children.

Now, consider this fact: America's population has risen from 200 million to 300 million since 1970, while the total number of two-parent families with children is the same today as it was when Richard Nixon took office, at 25 million. In 1973, the United States had 36 million housing units with three or more bedrooms, not many more than the number of two-parent families with children–which means that the supply of family homes was roughly in line with the number of families. By 2005, the number of housing units with three or more bedrooms had doubled to 72 million, though America had the same number of two-parent families with children.

The number of two-parent families with children, the kind of household that requires and can afford a large home, has remained essentially stagnant since 1963, according to the Census Bureau. Between 1963 and 2005, to be sure, the total number of what the Census Bureau categorizes as families grew from 47 million to 77 million. But most of the increase is due to families without children, including what are sometimes rather strangely called "one-person families."

In place of traditional two-parent families with children, America has seen enormous growth in one-parent families and childless families. The number of one-parent families with children has tripled. Dependent children formed half the U.S. population in 1960, and they add up to only 30 percent today. The dependent elderly doubled as a proportion of the population, from 15 percent in 1960 to 30 percent today.

If capital markets derive from the cycle of human life, what happens if the cycle goes wrong? Investors may be unreasonably panicked about the future, and governments can allay this panic by guaranteeing bank deposits, increasing incentives to invest, and so forth. But something different is in play when investors are reasonably panicked. What if there really is something wrong with our future–if the next generation fails to appear in sufficient numbers? The answer is that we get poorer.

The declining demographics of the traditional American family raise a dismal possibility: Perhaps the world is poorer now because the present generation did not bother to rear a new generation. All else is bookkeeping and ultimately trivial. This unwelcome and unprecedented change underlies the present global economic crisis. We are grayer, and less fecund, and as a result we are poorer, and will get poorer still–no matter what economic policies we put in place.

We could put this another way: America's housing market collapsed because conservatives lost the culture wars even back while they were prevailing in electoral politics. During the past half century America has changed from a nation in which most households had two parents with young children. We are now a malange of alternative arrangements in which the nuclear family is merely a niche phenomenon. By 2025, single-person households may outnumber families with children.

The collapse of home prices and the knock-on effects on the banking system stem from the shrinking count of families that require houses. It is no accident that the housing market–the economic sector most sensitive to demographics–was the epicenter of the economic crisis. In fact, demographers have been predicting a housing crash for years due to the demographics of diminishing demand. Wall Street and Washington merely succeeded in prolonging the housing bubble for a few additional years. The adverse demographics arising from cultural decay, though, portend far graver consequences for the funding of health and retirement systems.

Conservatives have indulged in self-congratulation over the quarter-century run of growth that began in 1984 with the Reagan administration's tax reforms. A prosperity that fails to rear a new generation in sufficient number is hollow, as we have learned to our detriment during the past year. Compared to Japan and most European countries, which face demographic catastrophe, America's position seems relatively strong, but that strength is only postponing the reckoning by keeping the world's capital flowing into the U.S. mortgage market right up until the crash at the end of 2007.

As long as conservative leaders delivered economic growth, family issues were relegated to Sunday rhetoric. Of course, conservative thinkers never actually proposed to measure the movement's success solely in units of gross domestic product, or square feet per home, or cubic displacement of the average automobile engine. But delivering consumer goods was what conservatives seemed to do well, and they rode the momentum of the Reagan boom.

Until now. Our children are our wealth. Too few of them are seated around America's common table, and it is their absence that makes us poor. Not only the absolute count of children, to be sure, but also the shrinking proportion of children raised with the moral material advantages of two-parent families diminishes our prospects. The capital markets have reduced the value of homeowners' equity by $8 trillion and of stocks by $7 trillion. Households with a provider aged 45 to 54 have lost half their net worth between 2004 and 2009, according to Dean Baker of the Center for Economic and Policy Research. There are ways to ameliorate the financial crisis, but none of them will replace the lives that should have been part of America and now are missed.

This suggests that nothing economic policy can do will entirely reverse the great wave of wealth destruction. President Obama made hope the watchword of his campaign, but there is less for which to hope, largely because of the economic impact of the lifestyle choices favored by the same young people who were so enthusiastic for Obama. The Reagan reforms created new markets and financing techniques and put enormous amounts of leverage at the disposal of businesses and households. The 1980s saw the creation of a mortgage-backed securities market that turned the American home into a ready source of capital, the emergence of a high-yield bond market that allowed new companies to issue debt, and the expansion of private equity. These financing techniques contributed mightily to the great expansion of 1984–2008, and they were the same instruments that would wreak ruin on the financial system. During the 1980s the baby boomers were in their twenties and thirties, when families are supposed to take on debt; twenty years later, the baby boomers were in their fifties and sixties, when families are supposed to save for retirement. The elixir of youth turned toxic for the aging.

Unless we restore the traditional family to a central position in American life, we cannot expect to return to the kind of wealth accumulation that characterized the 1980s and 1990s. Theoretically, we might recruit immigrants to replace the children we did not rear, or we might invest capital overseas with the children of other countries. From the standpoint of economic policy, neither of those possibilities can be dismissed. But the contributions of immigration or capital export will be marginal at best compared to the central issue of whether the demographics of America reverts to health.

Life is sacred for its own sake. It is not an instrument to provide us with fatter IRAs or better real-estate values. But it is fair to point out that wealth depends ultimately on the natural order of human life. Failing to rear a new generation in sufficient numbers to replace the present one violates that order, and it has consequences for wealth, among many other things. Americans who rejected the mild yoke of family responsibility in pursuit of atavistic enjoyment will find at last that this is not to be theirs, either.

It will be painful for conservatives to admit that things were not well with America under the Republican watch, at least not at the family level. From 1954 to 1970, for example, half or more of households contained two parents and one or more children under the age of eighteen. In fact as well as in popular culture, the two-parent nuclear family formed the normative American household. By 1981, when Ronald Reagan took office, two-parent households had fallen to just over two-fifths of the total. Today, less than a third of American households constitute a two-parent nuclear family with children.

Housing prices are collapsing in part because single-person households are replacing families with children. The Virginia Tech economist Arthur C. Nelson has noted that households with children would fall from half to a quarter of all households by 2025. The demand of Americans will then be urban apartments for empty nesters. Demand for large-lot single family homes, Nelson calculated, will slump from 56 million today to 34 million in 2025–a reduction of 40 percent. There never will be a housing price recovery in many parts of the country. Huge tracts will become uninhabited except by vandals and rodents.

All of these trends were evident for years, and duly noted by housing economists. Why did it take until 2007 for home prices to collapse? If America were a closed economy, the housing market would have crashed years ago. The paradox is that the rest of the industrial world, and much of the developing world, are aging faster than the United States.

In the industrial world, there are more than 400 million people in their peak savings years, 40 to 64 years of age, and the number is growing. There are fewer than 350 million young earners in the 19-to-40-year bracket, and their number is shrinking. If savers in Japan can't find enough young people to lend to, they will lend to the young people of other countries. Japan's median age will rise above 60 by mid-century, and Europe's will rise to the mid-50s.

America is slightly better off. Countries with aging and shrinking populations must export and invest the proceeds. Japan's households have hoarded $14 trillion in savings, which they will spend on geriatric care provided by Indonesian and Filipino nurses, as the country's population falls to just 90 million in 2050 from 127 million today.

The graying of the industrial world creates an inexhaustible supply of savings and demand for assets in which to invest them–which is to say, for young people able to borrow and pay loans with interest. The tragedy is that most of the world's young people live in countries without capital markets, enforcement of property rights, or reliable governments. Japanese investors will not buy mortgages from Africa or Latin America, or even China. A rich Chinese won't lend money to a poor Chinese unless, of course, the poor Chinese first moves to the United States.

Until recently, that left the United States the main destination for the aging savers of the industrial world. America became the magnet for savings accumulated by aging Europeans and Japanese. To this must be added the rainy-day savings of the Chinese government, whose desire to accumulate large amounts of foreign-exchange reserves is more than justified in retrospect by the present crisis.

America has roughly 120 million adults in the 19-to-44 age bracket, the prime borrowing years. That is not a large number against the 420 million prospective savers in the aging developed world as a whole. There simply aren't enough young Americans to absorb the savings of the rest of the world. In demographic terms, America is only the leper with the most fingers.

The rest of the world lent the United States vast sums, rising to almost $1 trillion in 2007. As the rest of the world thrust its savings on the United States, interest rates fell and home prices rose. To feed the inexhaustible demand for American assets, Wall Street connived with the ratings agencies to turn the sow's ear of subprime mortgages into silk purses, in the form of supposedly default-proof securities with high credit ratings. Americans thought themselves charmed and came to expect indefinitely continuing rates of 10 percent annual appreciation of home prices (and correspondingly higher returns to homeowners with a great deal of leverage).

The baby boomers evidently concluded that one day they all would sell their houses to each other at exorbitant prices and retire on the proceeds. The national household savings rate fell to zero by 2007, as Americans came to believe that capital gains on residential real estate would substitute for savings.

After a $15 trillion reduction in asset values, Americans are now saving as much as they can. Of course, if everyone saves and no one spends, the economy shuts down, which is precisely what is happening. The trouble is not that aging baby boomers need to save. The problem is that the families with children who need to spend never were formed in sufficient numbers to sustain growth.

In emphasizing the demographics, I do not mean to give Wall Street a free pass for prolonging the bubble. Without financial engineering, the crisis would have come sooner and in a milder form. But we would have been just as poor in consequence. The origin of the crisis is demographic, and its solution can only be demographic.

America needs to find productive young people to whom to lend. The world abounds in young people, of course, but not young people who can productively use capital and are thus good credit risks. The trouble is to locate young people who are reared to the skill sets, work ethic, and social values required for a modern economy.

In theory, it is possible to match American capital to the requirements of young people in venues capable of great productivity growth. East Asia, for example, has almost 500 million people in the 19-to-40-year-old bracket, 50 percent more than that of the entire industrial world. The prospect of raising the productivity of Chinese, Indians, and other Asians opens up an ­entirely different horizon for the American economy. In theory, the opportunities for investment in Asia are limitless, but political trust, capital markets, regulatory institutions, and other preconditions for such investment have been inadequate. For aging Americans to trust their savings to young Asians, a generation's worth of institutional reforms would be required.

It is also possible to improve America's demographic profile through immigration, as Reuven Brenner of McGill University has proposed. Some years ago Cardinal Baffi of Bologna suggested that Europe seek Catholic immigrants from Latin America. In a small way, something like this is happening. Europe's alternative is to accept more immigrants from the Middle East and Africa, with the attendant risks of cultural hollowing out and eventual Islamicization. America's problem is more difficult, for what America requires are highly skilled immigrants.

Even so, efforts to export capital and import workers will at best mitigate America's economic problems in a small way. We are going to be poorer for a generation and perhaps longer. We will drive smaller cars and live in smaller homes, vacation in cabins by the lake rather than at Disney World, and send our children to public universities rather than private liberal-arts colleges. The baby boomers on average will work five or ten years longer before retiring on less income than they had planned, and young people will work for less money at duller jobs than they had hoped.

In traditional societies, each extended family relied on its own children to care for its own elderly. The resources the community devoted to the destitute–gleaning the fields after harvest, for example–were quite limited. Modern society does not require every family to fund its retirement by rearing children; we may contribute to a pension fund and draw on the labor of the children of others. But if everyone were to retire on the same day, the pension fund would go bankrupt instantly, and we all would starve.

The distribution of rewards and penalties is manifestly unfair. The current crisis is particularly unfair to those who brought up children and contributed monthly to their pension fund, only to watch the value of their savings evaporate in the crisis. Tax and social-insurance policy should reflect the effort and cost of rearing children and require those who avoid such effort and cost to pay their fair share.

Numerous proposals for family-friendly tax policy are in circulation, including recent suggestions by Ramesh Ponnuru, Ross Douthat, and Reihan Salam. The core of a family-oriented economic program might include the following measures:

*Cut taxes on families. The personal exemption introduced with the Second World War's Victory Tax was $624, reflecting the cost of "food and a little more." In today's dollars that would be about $7,600, while the current personal exemption stands at only $3,650. The personal exemption should be raised to $8,000 simply to restore the real value of the deduction, and the full personal exemption should apply to children.

*Shift part of the burden of social insurance to the childless. For most taxpayers, social-insurance deductions are almost as great a burden as income tax. Families that bring up children contribute to the future tax base; families that do not get a free ride. The base rate for social security and Medicare deductions should rise, with a significant exemption for families with children, so that a disproportionate share of the burden falls on the childless.

*Make child-related expenses tax deductible. Tuition and health care are the key expenses here with which parents need help.

*Change the immigration laws. The United States needs highly skilled, productive individuals in their prime years for earning and family formation.

We delude ourselves when we imagine that a few hundred dollars of tax incentives will persuade individuals to form families or keep them together. A generation of Americans has grown up with the belief that the traditional family is merely one lifestyle choice among many.

But it is among the young that such a conservative message could reverberate the loudest. The young know that the promise of sexual freedom has brought them nothing but emptiness and anomie. They suffer more than anyone from the breakup of families. They know that abortion has wrought psychic damage that never can be repaired. And they see that their own future was compromised by the poor choices of their parents.

It was always morally wrong for conservatives to attempt to segregate the emotionally charged issues of public morals from the conservative growth agenda. We know now that it was also incompetent from a purely economic point of view. Without life, there is no wealth; without families, there is no economic future. The value of future income streams traded in capital markets will fall in accordance with our impoverished demography. We cannot pursue the acquisition of wealth and the provision of upward mobility except through the reconquest of the American polity on behalf of the American family.

The conservative movement today seems weaker than at any time since Lyndon Johnson defeated Barry Goldwater. There are no free-marketeers in the foxholes, and it is hard to find an economist of any stripe who does not believe that the government must provide some kind of economic stimulus and rescue the financial system.

But the present crisis also might present the conservative movement with the greatest opportunity it has had since Ronald Reagan took office. The Obama administration will certainly face backlash when its promise to fix the economy through the antiquated tools of Keynesian stimulus comes to nothing. And as a result, American voters may be more disposed to consider fundamental problems than they have been for several generations. The message that our children are our wealth, and that families are its custodian, might resonate all the more strongly for the manifest failure of the alternatives.

David P. Goldman is a senior editor of First Things

[Brian Kopp DPM]

Harry Dent's Outlook on Demographics, Debt and Deflation

Friday morning, I had the fortunate opportunity to speak with demographic trend expert and economic researcher Harry S. Dent. It was a great conversation and we covered a lot of topics, including the demographic outlook in America, the inflation/deflation argument, potential inflection points for the stock market based on spending wave turning points, and more.

I had intended to record and post the conversation, which was very lively (Harry gives a great interview) - but unfortunately I botched the recording! When I went to play it back afterwards - nothing at all. Agh!

But, we can't let that keep us down. It'd have been easier for me to post an mp3, but hey, my loss is your gain! I took copious notes, and I've been following Dent's research for a bit now, so here's a very detailed summary of our interview, and some topical background info in case you're new to his brand of demographic analysis.

Harry Dent's Previous Successful Bull Market and Depression Predictions

Beginning in the late 1980's, Dent began touting a bull market in US stocks that would go higher and farther than most believed. He reiterated that call in 1992 - a time when many analysts were very bearish (hard to believe in hindsight, but true - many bestselling investing book titles from the early 90's were doom and gloom).

Impressively, he stayed bullish during the early to mid 00's - again a time when many (including me) thought the stock market bubble had burst once and for all. Dent's analysis told him that there was one big last gasp for the party, thanks to boomer spending hitting its peak. (Note: He did have some very high price targets on the DOW that were not hit - some folks are a bit down on him for this, but I think that's missing the point of his research. Longer term index price predictions are very difficult. I'm more concerned with accurately predicting the direction of the trend - and he's been quite spot-on in this regard).

Dent's longer term warning alongside these bullish predictions, though, has always been that another Great Depression would follow the boom of the 90's and 00's, sometime from 2007-09. Now, right on schedule, we're on the other side of the boom/bust peak - and into our current Depression.

Source: HS Dent Foundation

As you can see from the chart above, consumer spending peaked in 2008, and is heading downward. According to Dent's research, this trend should be in play for some time. Why? Glad you asked...

How Demographics Drive Spending Trends (and Hence Stock Prices)

Dent's research shows that human spending habits follow very predictable patterns throughout the human lifecycle. Individuals typically hit their peak spending between the ages of 46 to 50, as depicted in the graph here:

Source: HS Dent Foundation

These spending waves drive the economy, as well as stock prices. In the US, as you can see, there's been a very tight correlation between family spending, and stock prices:

Source: HS Dent Foundation

Peak spending rolled over for the first time in 2007 - and the stock market rolled with it. If the economy continues to follow the spending wave, we're in for another lean 12 years, as the next peak spending pickup is not scheduled until 2022! This is due to the fact that baby boomers are now past peak spending - and we've got over a decade until the next "baby boomlet" hits peak spending stride.

While everyone was busy getting high in the 60's and 70's...we actually could have used a few more babies!

Source: HS Dent Foundation

Why Government Stimulus Spending Isn't Working This Time

For the first time in American history, government stimulus is falling flat on its face. It's starting to become apparent that the record stimulus being thrown at our economy is not going to pull us out of this recession/depression. Why?

Because according to Dent's research, for the first time ever, we don't have favorable demographic winds at our back. During previous recessions, the government could float easy money out into the economy, and eager consumers would grab it and spend it - because they were in the upswings in their spending patterns. But this time, Bernanke & Co are merely pushing on a proverbial string. The Fed can extend credit - but they can't force the consumer to take it!

They can't get the baby boomers to take on more debt because of where they are in the spending cycle. It's a time to save, not spend, in their lives. Want a mortgage at record low rates? No thanks - we're already choking on debt! And we hope to retire someday.

Hence, the Keynsian solution that "worked" (quotes for you Austrian econ fans) so well during the 20th century is shooting blanks here in our 2008-2010 and counting Depression. Hmmmm, this is starting to sounds like another advanced economy that's been stuck in the mud for a couple of decades now...

Japan's Spending Wave Peaked in Tandem With Its Bubble

Dent's team accurately forecasted the current soft depression in Japan in the late 1980s, at a time when the world was wildly bullish on Japan's future. The secret was, again, the spending wave - Japan's baby boom reached peak spending in 1990, at it's been downhill ever since for Japanese stocks and real estate.

Since 1990, the Japanese economy has been fueled by government stimulus, and only government stimulus. Like a drug addict, as soon as the high of government spending wears off, the economy again slumps into recession. The same appears to be happening here in the US, as our initial stimulus begins to wear off, and we don't have much to show for it - except for a lot more sovereign debt, of course.

So Will It Be Inflation or Deflation?

Dent cites the massive amount of private debt (estimated to be $50-100 trillion or higher) as a large pool of credit that is going to have a significant chunk written down (his debt deflation scenario is similar to Robert Prechter's in this regard, though less extreme).

As this massive amount of bad debt floats away to "money heaven", the forces of deflation will overwhelm any amount of potential government stimulus, Dent believes. Also, with the US citizenry already quite pissed that the last stimulus didn't do much of anything, the Federal government's hands may be increasingly tied by voters calling for austerity measures (or at least, more responsible government spending).

Return of the Bond Vigilantes?

I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody.- James Carville, political advisor to President Clinton

Even if Joe Sixpack doesn't rise up, Dent anticipates a far more powerful force will ultimately check the government's ebullient spending - the bond market. During the last wave down, the bond market benefited as a "flight to safety play". Dent doesn't see that repeating next time - instead, he sees concerns over government debt as being a cue for the "bond vigilantes" to ride back onto American soil and enforce some level of fiscal sanity - likely when the next stimulus package is floated out there.

He cites the speed at which the vigilantes can mobilize and drive up the rates on government debt - like the quick spike in Greek interest rates this spring - as an example of how fast spreads can skyrocket.

Overall, his team projecting a potential 2% rise in 10-year yields - which would push the 10-year yield up from 2.5% to 4.5%. Think the housing market is in trouble now? Imagine a 2% bump in mortgage rates!

Deflation Investing Strategies

"Cash is king" is Dent's mantra today - specifically US dollars.

Why dollars? Because the supply of dollars is going to continue to contract as debt continues to contract - and it will contract at a much faster rate than the Fed can potentially create it.

The US Dollar is not going to crash - it's already crashed, says Dent. A 60% drop since 1985 is a huge move in the currency markets. Now, the deflationary period ahead will serve its purpose of restoring the value of the dollar, which is still the unchallenged world reserve currency.

He also likes bonds, but not yet. He thinks the time to buy will be if and when the bond vigilantes ride into town and bring yields up to 4.5% or so. That would be a compelling buy, that could yield 5-6% per year overall, when factoring in price appreciation. Dent forecasts that yields would then slump slowly for a long period of time - a la Japan.

Making Sense of Today's Schizophrenic Markets

While Dent's demographic forecasting models have been extremely accurate in forecasting long term economic trends, he readily admits that the immediate short term is often much more difficult to predict. And that's never been more true than it is now, as many experts are scrambling for a clue. This economic and investing environment is truly a once-in-a-lifetime event.

How to Manage Your Life During Deflation

In your personal life, Dent similarly believes that cash flow is king during this deflationary depression. If you run a business, he recommends you cut all unnecessary expenses, and work to maximize your cash flow and efficiency.

Thinking of buying a home? You may want to wait until at least 2012 or 2013, as mortgage rate resets are set to continue through 2011. Given a one-year lag on price declines, and we won't see a housing market bottom until 2012 in the earliest.

In the meantime, your cash will increase in value, possibly quite significantly (see Nikkei chart above!) and you'll be able to get much more house for your buck if you sit tight and wait (also see our Renter's Manifesto for an admittedly biased rent vs. buy rant).

Countries With the Most Favorable Demographics

Out of the world's major countries, Dent likes India's demographics the best. China does not compare as favorably - due to their baby nightmare "one child per family" policy. He thinks China will get old before it gets rich, and that per capita, their wealth will never reach that of the current US.

Looking at emerging markets, Dent loves the promise of Southeast Asia, and Vietnam in particular. He's also intrigued by the Middle East, and sees opportunity there, provided they are able to keep it together somewhat politically (a big IF, for sure!)

Investing abroad will be very important for Americans after the current crash is worked out, he believes, because the cherry days of investing in America are over. While sectors such as healthcare may perform well as the US wheels itself into the nursing home, history has shown that the most compelling investment opportunities are often found in countries that are roaring to up Dent's spending wave curve.

Summing It Up - Big Picture Forecast

Dent expects a major bottom in the stock market sometime around 2012. He thinks that the previous lows will likely be taken out, with the market falling significantly once again (DOW anywhere from 3800-6440). If that happens, you obviously don't want to be in stocks.

Between now and then, he's allowing for another potential rally that could set new highs in the market, and carry all the way into next year. That's not required, though, as he thinks it's possible the stock market rolls over sooner as people come to the realization that the economy is not actually improving.

Bottom line is that he sees very little upside to stocks at this juncture, and a lot of potential downside.

Following the epic 2012 bottom, Dent says we could see a bear market rally as long as 5 years, eventually giving way to another gentle slump that would take us up to the next spending wave uptick in 2022.

Dent, like David Rosenberg, believes that ultimately austerity measures will win-out in America. It will be a painful 10+ years, but this is what the "winter" season is for, as Dent refers to it - to clean out the excesses of bubbles past, and prepare for "spring", a new season of growth.

It's not the end of the world - you can come out of this financially fine, and even ahead of the curve, if you are smart about navigating these deflationary waters.

More From Harry Dent

I'd highly encourage you to visit www.hsdent.com for some great free resources from Harry Dent and his team. He also has a free newsletter available that breaks down the debt crisis. Please click through to www.hsdent.com to check out his latest stuff (and to thank him for giving us the interview!)

You can also pick up a copy of his latest book, The Great Depression Ahead, online or at your local bookstore.

Disclosure: Long UUP, Short the Euro (via futures markets), Short the S&P (via SDS and futures)

[Brian Kopp DPM]

Mark Steyn’s demographics thesis is being proven right by current events

What is Mark’s thesis? It is that the West is undergoing a demographics collapse brought on by its welfare state politics that it has pursued now for over a hundred years. The problem is that the welfare state that everybody in the West lives in, particularly in Western Europe, is dependent on demographic growth to fund all the state’s dependents. This is a vicious cycle. The final stage of the welfare state is when the dearth of new citizens makes the benefits the state has promised its aging citizens unsupportable. And so the welfare state collapses.

This stage is firmly under way in Europe. Check out the current crisis in Greece, which according to this article, is spreading to other weak members of the Eurozone, like Portugal, Spain and Italy. Like dominos, they are all beginning to fall. And the reason why countries like Greece are going first is because they have the lowest birth rate coupled with the most generous benefits. Look for more stories like this in the near future about other European countries.

An easy way around this problem is to import cheap labour from another country, one with a higher birth rate. Unfortunately, when you rely on this solution too much (especially from one source region), you create all kinds of other societal problems, for instance, like the illegal immigrant situation in the US. This issue is currently bubbling to the surface in Arizona where a new law against illegal aliens was just signed into law by the (now popular) governor. This crisis is not going anywhere as Texas ponders a similar measure.

We are currently in the early stages of the unravelling of the postwar consensus. Except for the collapse of the Soviet Union, the society that developed in the 1950’s after the carnage of World War II is being unravelled by its internal contradictions. Look for more of the same as the welfare state after welfare state goes bust. If things go well, the West will be stronger than ever as it mends its family tradition and relearns self-reliance. If the West is too enfeebled to survive, thanks in no small measure to the challengeg posed by the unassimilatable and overtly anti-west Muslim minority in Western Europe, the result will be a victory for barbarism and a giant step backwards for civilization.

[Salvavida]

Biblical illiteracy.

Sooner or later, everyone faces Jesus.