Demographic winter chills financial markets

Just like peak oil, I'm on board when it comes to the long-term drag that demographics is going to have on the global economy.

But "the market" is not responding to peak oil or demographics. This is anthropomorphizing nonsense. Besides, I don't know how anybody could ascribe anything even approaching wisdom to "the markets" after all that we have learned in behavioral economics.

Unlike pyrrho I've never been a fan of Spengler, and nothing that I've seen from him lately is changing that. In this article Spengler fails to note the somewhat relevant fact that the populations of both the US and Germany are growing robustly. (Granted it's due to immigration and not reproduction, but that makes no difference to his argument.) He fails to note that speculation in the mortgage market was driven more by loose fiscal policy and poor risk assessment than any other factors. And he fails to note that mortgages are subsidized in the US but not in Germany, which just might make a difference in how the two markets behave.

Spengler just isn't very smart.

Immigration is not a boast to either Germany or the United States if the new immigrants are unskilled ,third world peasants. Muslim immigrants in Europe are generally unproductive or far less productive than natives of middle and upper class backgrounds. Immigration is no gain,unless the immigrants are comparable in education and productive capicity as the natives they are replacing, and they aren't. Thats not xenophobic or racist,just hard cold,naked,unblinking, reality.

Some of the Spengler critics are probile also silly techno-optimist, who look to elaborate science and every other conjuring trick modern society can bring for salvation while forgeting the obvious and simple like having their own damn children.

Further more Spengler is not totally wrong on the mortgages, they where bundled and resold as securities, all around the world to ,yes fund pension plans, and several larger European banks and European investors got burned on these securities. Even though the housing market in Germany is different than the US,the point is, that they like everyone else bought garbage securities that Wallstreet was pedaling. Our stupidity doesn't just stay with us.

Boomers aren't going to start saving, as Spengler says. They are going to start dis-saving in their retirement. Interest rates will increase as Americans, Europeans and Japanese sell their assets. Capital will be demanded by China, India, Brazil, and younger American workers. It will be a great time to own capital and be a saver.

"The new generation supports the old one, and retirement systems simply apportion rights to income between the generations"

In an ideal world perhaps, where governments don't interfere and debase their currencies via Central Bank and Treasury collusion (inflation of the supply of money dilutes the value of each currency unit held whether by new generation or older) or not - our dollars are victims of our State's unpatriotic dereliction of duty to tend the Treasury with fiscal prudence.

Other Jim: "It will be a great time to own capital and be a saver."

No, it won't, if we insist on maintaining fractional reserve banking!
Why is the price of oil so high? Because it is a real commodity in limited supply (hoarded in the ground by public authorities) unlike our savings in dollars which are kept on the banks' books as their reserve NOT lent out. Commercial money (credit) is FIAT currency generated ex nihilo by the Treasury as a credit "multiplier". A thousand dollars of your real assets held as a 20% reserve, permits the bank to "create" $10,000 in loans, which pay the folks whose goods and services were purchased with credit. The banks help businesses sell more stuff, not savers conserve assets!!!

Europe's nationalized central banks are more little-c-conservative in their conception of fiduciary trust than our private corporatist "cabal" (highly loaded, but accurate, term = there is no 'one' Fed, its a federation of local bankers aggregated by contiguous state borders) In a stable economy assets conserve their value, only when the market is "gamed" does fluid cashflow chase assets and drive up prices. Recent remarks by poor old George Soros would indicate he is as deluded as Spengler, claiming it is the state's responsibility to provide "liquidity". HOGWASH!!! The liquidity comes out of your purse by heating up the economy and turning our solvent cash flows into a vapour trail of so much steam'n'hot air, leaving the weakest worldwide in poverty, a threat of global starvation in a glut market.

Inflation is evil, remember? If Spengler's hypothesis held water (to keep the liquidity metaphor flowing), how come the prodigiously populous Phillipinos aren't the richest amongst us?

I'm an economist who specializes in the Japanese economy, and I am fluent in the language. (You wouldn't believe the amount of ignorant bullsh*t that would be cleared up if more people over here could actually read Japanese newspapers.)

Where to begin ... First, Japan did experience a baby boom. It just ended earlier. I think Dent's demographic argument only kicked in about five or so years ago.

Japan hit the skids economically for two reasons: (1) it manipulated its currency to prolong export-led growth longer than was economically viable, and (2) it never developed a truly free domestic economy. It did not allow the yen to find its true value relative to the dollar because that would have meant liberalizing its domestic economy to allow for the import of more goods from the United States. The domestic economy is even today a quasi-command economy in which domestic consumption is squelched in order to redirect savings into investments in export-driven industries. The degree of rent-seeking and public-private collusion in the Japanese economy is simply astonishing to outsiders. It is thus politically very difficult to liberalize. However, if US exporters do not have enough yen to exhange for dollars with Japanese exporters, the yen goes through the roof. So the Bank of Japan buys up dollars from Japanese exporters by *printing yen*, and recycles these dollars into US government debt. (Lowering overall interest rates in the US and spurring a splurge in government spending and private consumption, but that is another story.) There is nothing for these Japanese exporters and their banks to spend this excess amount of yen on. They already have excess capacity in industry due to the redirection of domestic savings and domestic consumption is curtailed by crony capitalism at home, so they begin to speculate on stocks and real estate. In the end, the speculative bubbles burst and the financial system is effectively bankrupted. Meanwhile, export-led growth remains stagnant (as it was before the bubbles) and the domestic economy remains stagnant due to domestic crony capitalism.

I have to get back to work ... But you get the idea.

BTW, something similar is going to happen in China. And soon.

Clare, I'm not giving investment advice, only looking at the real economy underneath. Strip out the fiat currency, credit, etc. Much of the world is developing, they will dissave as they increase consumption—see the youth of China as an example. Boomers around the globe want to sell assets...to whom? They are all retiring. Young Americans will be buying homes, having children, etc. It will be left to the smallest generation, Gen X and to an extent Y, to provide the capital for the economy.

And following Japan's crunch, the yen has held constant over the past 15 years, with little inflation. As people begin to spend their savings, homes, stocks, etc., deflation will accelerate. There will be high real interest rates.

Communist China has NOT private property - title jurisdication is like the Duke of Westminster's lands in London: young Chinese are only "buying" 70 yr lease of "use" not the real title in perpetuity. Their stock markets are (as in Japan and increasingly Wall Street) really a state-funded lottery, swings and roundabouts were a lucky few make a dime while the Government's making a killing on seignorage (selling the FIAT commercial papers in state assets that the people supposedly already "own")

Its a corrupt house of cards and its going to be nasty when the social contract crumbles - Germans have been aware of their actuarials for two decades (heck, I saw this coming - am I SO glad I never transferred my retirement benefits over here when I relocated).

One can see that we're all ostriches with our heads in the sand by how few folks have participated in this thread... 15 is a paltry number, and quite fearful actually that so many of our fellow citizens are so ignorant of the basic facts of life, its primary narcissism to blame, of course, infantilization by national mythology (see Janine Chasseguet-Smirgel for conservative faith-based critique of our culture's pervasive and chronic malady)

pyrrho,

So in your world view cash is king?

If so, what is the general time frame. Since every possible financial prediction is likely to be true "at some point", timing is everything.

I remember when Japan was going to rule the world, and shaking my head in disbelief. There were sorts of quasi-mythical reasons proffered for this inevitability. Of course, no one in the "mystical rice-growing people" commentariat could even read a Japanese newspaper.

I used to search in vain for a classical economic explanation of Japan's rise.

I remember quite vividly an interview with a British journalist in Hongkong who had spookily predicted the Tiananmen Square uprising. His admirers asked him how he did it. Simple, he replied, I read the Chinese-language newspapers here in Hongkong.