When Exploding Debt Meets Collapsing Demography
The 1982-1999 bull market was driven by the post-war baby boom, which resulted in a bulge in the numbers of working-age adults and the core savings group. That has ominous implications. Facing current trends in birth rates and rising life expectancy, a growing body of economic research suggests that the rates of stockmarket growth enjoyed by investors during the 1980s and 1990s are gone for at least a generation - and possibly forever.Japan demonstrates the phenomenon most clearly, but most of Europe is following close behind. South Korea also has low birthrates and is experiencing societal ageing.
But another factor was at work, too: demography. The 1982-1999 bull market was driven by the post-war baby boom, which resulted in a bulge in the numbers of working-age adults. Those adults are now retiring, having spent too much time working and not enough time procreating.
Falling birth rates and rising life expectancy have left the industrialised world with a demographic profile very different from that of the 1950s. There is a growing body of evidence to suggest that sharply ageing populations will weigh on both economic growth and asset values for years, if not decades to come. _FT
If one wanted to look at asset values in the industrialised economy most representative of population ageing, that would be Japan. It has sharply declining fertility rates, net immigration of virtually zero and the longest-lived population of any large economy. Its stock market peaked in the late 1980s – at about the time the size of its working age population did – and has atrophied ever since. _FTJapan has very restrictive immigration policies, and is attempting to replace as much of its vanishing workforce as possible using robot labour and other types of automation. Europe has attempted to immigrate its way out of its looming disaster of debt and demography -- but has not been able to find sufficient high quality and culturally assimilable immigrants to replace the vanishing Europeans.
The Anglosphere -- the US, UK, Canada, Australia, New Zealand, Ireland etc. -- present a mixed picture, but are following on the same general path as Europe and Japan, complicated mainly by very mixed patterns of immigration.
The FT article quoted above looks mainly at the affect of ageing on investment and asset classes. In reality, the problems faced by rapidly ageing societies with the additional burden of deeply indebted and bloated national governments, go far beyond problems of investment.
Not only does the productive workforce population shrink in an ageing population, but the military age population likewise shrivels away. The numbers of creative and inventive people will diminish even more quickly -- since the contemporary pattern is for the most intelligent and ambitious men and women to remain childless, or to have perhaps one trophy child.
There is nothing that anyone can do for these societies as a whole. But if one is particularly attached to one small piece of one of these countries, there are preventive steps that one might take to make his community more resilient to the challenges that are coming.
In subsequent postings, we will look at some thoughts on why some communities commit to the idea of a future, while other communities have difficulty looking past a very narrow and limited view of the present.
Labels: demographic change