Its Beginning To Look A Lot Like… Winter

23 10 2008

Demographic winter, that is. The WSJ ran an interesting article called Boomer Bust: How Will the Economy Rebound Without Post-War Babies Financing Their Harleys? Some excerpts:

WASHINGTON — Baby Boomers have pumped up the global economy with their profligate ways for nearly two decades. It’s been a great party. Now the music’s over.

…what Baby Boomers of all persuasions have done, without dispute and to an unprecedented degree, is spend money instead of saving it.

…Affluent Boomers had more to spend than most of their Depression-baby parents could have dreamed. Their appetites buoyed sales of everything from Bavarian sedans to Sumatran coffee to Swedish furniture. Boomers could make or break a brand. Boomers embraced Toyota, and helped make it the world’s dominant car maker. They shunned Oldsmobile, and it died. Boomers have driven the explosive growth of the computer and consumer electronics industries, accounting for half the money spent on techno-gadgets, big-screen televisions, laptops and the like, according to McKinsey.

When Boomers ran out of cash, they financed their dreams. The U.S. household saving rate plunged to 2% of income in the 2000-2005 period, when Boomers were hitting their earning peak, from 10% during the early 1980s. Imposing McMansions sheltered occupants with five-figure credit-card balances, exotic balloon mortgages and V-8 powered sport-utility vehicles financed over five and six years, all adjuncts to a lifestyle that depended on cheap credit and cheap oil.

…Some economists and demographers say the Baby Boomers themselves are driving the current turmoil. As Boomers send their kids out into the world, they are entering the phase of life when income starts to fall, spending slows and houses get sold. The same generational heft that Boomers used to create fads for hula hoops, sport-utility vehicles and Harleys will now work against them as all of them rush to cash out and slow down at once. That puts more houses up for sale to far fewer buyers: a younger generation that is also less able to afford them.

The generational crash is when there are too many older homeowners and not enough buyers,” says Dowell Myers, a University of Southern California professor.

This is like winter coming,” adds Harry S. Dent, an author and consultant who says the U.S. is headed for a slump that will last until 2020.

…”The Baby Boomers are going to have to work longer and eat less,” Ms. Mitchell says. “And go back to what my mother was doing — saving string.”

If you’ve seen Demographic Winter, this probably all sounds familiar to you. (The full video looks to be available here also).

The boomer demographic fueled the “expansion” of our economy through their spending. I don’t believe that point is disputed. What isn’t widely understood is the flip side – as they age en masse, their income has already peaked, their spending will soon peak if it hasn’t already, and our economy is due for a serious decline. They spent and borrowed, but it was all a suicidal shopping spree. They failed to reproduce themselves as a group. We are facing an inverse population period, with not enough in younger generations to support the large boomer segment in retirement while also supporting themselves.

This calls for preparations – but exactly what this is going to look like, I’m not sure. The Boomers will need to prepare to “work longer and eat less,” as well as “saving string.” And the younger ones will have to re-think every financial assumption they’ve ever been taught by their parents’ generation. They’ll need to prepare to take care of their parents with less income, and at the same time deal with the desperate attempts of an increasingly fascist state to try to “fix” the problems that will ensue when it can’t raise enough taxes to support its entitlement obligations and debt service.

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1 11 2008
The Real Economic Disaster Is Yet To Come… « In Due Season…

[…] worse than the picture painted in the article, really. We’re facing not a nuclear winter, but a demographic one. Not only will the boomer generation start drawing all these entitlements like Social Security and […]

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