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We are in the midst of the great baby-boomers economic stagnation of 2007-2017
Rodrigue Tremblay
Online Journal
Thursday, July 9, 2009
“Banking establishments are more dangerous than standing armies.” –Thomas Jefferson (1743-1826), 3rd US President
“ . . . a serious depression seems improbable; [we expect] recovery of business next spring, with further improvement in the fall.” –Harvard Economic Society (HES), November 10, 1929
“While the crash only took place six months ago, I am convinced we have now passed through the worst — and with continued unity of effort we shall rapidly recover. There has been no significant bank or industrial failure. That danger, too, is safely behind us.” –President Herbert Hoover, May 1, 1930
“Under a paper money system, a determined government can always generate higher spending and hence positive inflation.” –Fed Chairman Ben Bernanke, in 2002
Many observers think that “prosperity is around the corner” and that this recession, like others since World War II, will end as soon as the stock market, as a leading indicator, recovers and people start spending again. This is a myopic view of the current economic big picture.
In fact, since the peak of the housing bubble (in the U.S.) in 2005, the onslaught of the subprime financial crisis in August 2007 and the beginning of the recession in December 2007, the U. S. economy, and to a certain extent, the world economy, have entered a period of protracted adjustments. For sure, there will be some quarters of positive economic growth ahead and the recession may be declared officially over in the coming months, but the radical economic reorganization that is taking place will go on for years to come.
Why is this so?
Essentially, because we are at the very end of the 60-year inflation-disinflation-deflation Kondratieff cycle that began in 1949 when war-frozen prices were liberalized; and that powerful long cycle is ending now. The post 1980s era, i.e., the Reagan era, is over, but the excesses and bubbles of the last few decades have to be corrected, at a time when large population shifts are about to take place. Such adjustments will take years to unfold and this will entail a lot of efforts and a lot of changes.
Indeed, the era of excessive spending and of excessive debt is over. The era of excessive government economic disengagement and of financial deregulation is over. The era of irresponsible Ponzi-scheme finance is over. The era of unregulated derivatives is over. The era of greed as an ideology is over. The era of wild and predatory capitalism is over. The era of cheap oil, of cheap transportation, of cheap commodities and of cheap food is over. The era of excessive concentration of wealth and income is also over. However, the age of political corruption, of incompetent politicians and of destructive wars of aggression is not over. What has arrived is the age of hyperstagflation.
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The central driving force behind most of these developments, besides the collapse of the financial sector, the debt pyramid and the derivative products structure, and irresponsible talk of larger wars by loose cannon politicians (as if there were not enough problems!) is going to be demographic. Indeed, we have entered a period during which the largest demographic cohort in the history of mankind, the post Word War II baby-boomer generation, has passed its spending peak. This is not something that can be reversed overnight. This is going to be a decade-long process of adjustment, of less spending, of more saving, and above all, of paying off excessive debt loads. Let’s keep in mind that consumer spending represents 70 percent of GDP.
The economic consequences are going to be profound and will affect all sectors of the economy. We only have to consider how the automobile industry, once a major engine of economic growth, is presently going through a fundamental reorganization and downsizing. Even computer-based industries have matured and cannot anymore be considered fast growing industries. The only growth sectors left in the U.S. seem to be the health services industry, as the population is aging, and the war-related industries, as the U.S. military-industrial complex keeps on expanding. But even those sectors will have to slow down; lest they bankrupt the entire economy.
That’s why I think these industrial and demographic trends herald a period of slower economic growth that could last many years. Governments better wake up to the challenges that such a slow growth environment entails. Very few people are prepared for such a prolonged period of economic stagnation that will be accompanied by forced debt liquidation, in a deflationary environment. This is particularly true of private pension plans that will have trouble paying pensions to recipients in the coming years. This is also true for employment that will expand at a slower pace than the working population, at least for a while, resulting in a rise in the level of unemployment.
Baby-boomers are those individuals who were born between 1946 and 1966. Because of its sheer size (more than 70 million people in the U.S.), this generation has been dominant in all spheres of life for the last 50 years. But now, it has passed its spending peak. This occurred in 2005-06, at the very top of the housing bubble. The average age of the baby-boomer demographic cohort was then 50, which is the age of top spending. At that time, the U.S. personal savings rate fell to a whopping minus 2.5 percent per year. As a comparison, it was 12.5 percent during the 1981-82 recession and it has now rebounded a phenomenal 5.7 percent in April 2009, and it’s climbing fast.
Indeed, the end of the housing bubble, the financial crisis, and the economic recession altogether have sent a clear signal to baby boomers. You’d better begin saving soon, or your retirement will have to be postponed. And saving means consuming and spending less, while paying up debts, in order to boost net current personal assets to a level that could sustain retirement needs. But if the largest cohort of consumers cuts down on its spending and borrowing, what does it mean for aggregate spending and economic growth? It can only mean slower overall economic growth and some painful economic adjustments. Therefore, there is a high probability that this recession will be a super one that may linger on for years, being interrupted by short-run upside bursts, but soon being followed by a return of stagnant conditions. In Japan, in the 1990s, a similar financially and demographically induced recession lingered on for an entire decade. And even after 20 years, it cannot be said that Japan is out of the woods yet.
In the short run, in order to counteract the effects of the financial crisis and to fight the current recession that began officially in December 2007 (according to the National Bureau of Economic Research- NBER), the Obama administration has devised a three-quarter billion dollar stimulus plan and has let the fiscal deficit explode to more than 2 trillion dollars a year because of its bailout of the troubled banks. Similarly, the Fed has lowered short-term rates to zero and has purchased billions of dollars in long-term Treasury securities, in government agency securities, and even in mortgage-backed securities, in a desperate effort to save large financial institutions such as AIG, Fannie and Freddie, and other American financial institutions from imploding. But now bond investors, especially international investors, are selling Treasury bonds and are pushing long-term interest rates up and the U.S. dollar down as inflation fears increase, even though paradoxically the collapse of the pyramid of debts creates a deflationary environment for the entire economy.
The danger here is that bond investors will be selling Treasury bonds faster than the Fed can buy them. In which case, there will be a downward spiral in bond prices as inflation and solvency fears are exacerbated. In a word, if the Fed does not tone down its current policy of excessive monetizing of public and private debts and its obvious ‘benign neglect’ policy toward the dollar, high inflation and possibly even hyperinflation become a possibility down the road. This has happened elsewhere in the past and there is no reason why it could not happen again, especially if the U.S. keeps getting involved in costly wars abroad, paying those adventures with money it does not have.
For now, a quick resurgence of inflation is only a remote possibility. This is nevertheless a possibility, considering that central banks have a tendency to overdo the printing of fiat money. In fact, if governments attempt to print their way out of the coming structural demographic problem, they will end up generating a hyperstagflation. In a nutshell, this is what the huge international dollar-denominated bond market sees and fears, at a time when it has to absorb a huge supply of new bond issues. In reality, the bond market will always win against any central bank, any time. The solvency woes and the likely default of the state of California on its outstanding debt will only add to the anxiety.
A few weeks ago, I warned against the risk of future long-term interest rates hikes and future U.S. dollar depreciation following the decisions by the U.S. Treasury and by the Fed to flood the markets with trillions of dollars of new Treasury bond issues and with newly printed money. The undertow is coming even faster than I thought. Only when the markets expect relative economic stagnation and a lasting deflationary environment will long-term interest rates taper off.
Brace yourself and hold on to your britches. There is a rough economic decade ahead.
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29 Responses to “We are in the midst of the great baby-boomers economic stagnation of 2007-2017”
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July 9th, 2009 at 5:27 am
makes me wonder..if the bottom hadn,t dropped on the loans issues, I wonder could they have paid out the pensions and retirement funds as they came due…my guess is the loans and lies of the one we keep hearing of, covers a double whammy, so One is used to negate the other.
July 9th, 2009 at 5:48 am
me view is a bunch of greedy lazy lying bastards are gonna end up dead and eaten
July 9th, 2009 at 6:00 am
“I have two great enemies, the southern army in front of me and the financial institutions, in the rear. Of the two, the one in the rear is the greatest enemy….. I see in the future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. As a result of the war, corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until wealth is aggregated in a few hands and the Republic is destroyed. I feel at this moment more anxiety for the safety of my country than ever before, even in the midst of the war.” – Abraham Lincoln
The Transmogrifer Reply:
July 9th, 2009 at 6:36 pm
Dear Stuck in the Matrix, Lincoln simply wanted to be a dictator to enslave and usurp state’s rights. Wilson and FDR would come along and finish the job. The drift toward central power originates from pre-Egyptian time what it was thought that the earth was the center of the universe. Ironically we still say that the sun rises and sets. Centralization and a ruling elite are just downright counter-productive and generate misery on a phenomenal scale. I have to conclude that if we cannot accurately describe what day and night are, we sure won’t get away from a ruling elite or centralization.
zarathustr88 Reply:
July 10th, 2009 at 2:07 am
WE MADE A MONSTER OF HITLER, A DEVIL. THAT IS WHY (THEREFORE) WE COULD NOT AFTER THE WAR SAY OTHERWISE.
WE HAD PERSONALLY MOBILISED THE MASSES NEVERTHELESS AGAINST THE DEVIL. THUS WE WERE FORCED AFTER THE WAR, TO PLAY ALONG WITH THIS DEVILS’ SCENARIO.
WE COULD NOT POSSIBLY HAVE MADE OUR PEOPLE CLEAR (TO THEM) THAT THE WAR WAS ONLY AN ECONOMIC PREVENTATIVE MEASURE!”
JAMES BAKER , EX US- FOREIGN MINISTER
SOURCE: DER SPIEGEL, 13/ 1992″
-James A. Baker III
July 9th, 2009 at 7:01 am
First of all, big coporations and responsible for the state America is in today, not average boomers! Second, America has untill 2012
honky dog Reply:
July 9th, 2009 at 6:38 pm
Please check out his site that I found… It is awesome and there is so much information about everything. The spiritual info is just what the doctor ordered… Too much bad news all of the time…. Turn your day around… http://www.thegrandawakening.com
jabber jaw Reply:
July 9th, 2009 at 6:40 pm
Please check out his site that I found… It is awesome and there is so much information about everything. The spiritual info is just what the doctor ordered… Too much bad news all of the time…. Turn your day around… http://www.thegrandawakening.com
July 9th, 2009 at 8:41 am
Business cycles occur all the time. This is nothing new. The key is to insulate yourself from them as much as possible.
July 9th, 2009 at 8:58 am
What a future before us! Cranky old white people navigating a landscape that looks like the Wire mixed with some third world city. It is going to be wild!
william b travis Reply:
July 9th, 2009 at 11:49 am
i knew a bitch named frank williams once
he was a lying lazy no good scumbag
are you him?
Frank Williams Reply:
July 9th, 2009 at 1:07 pm
Yep!
July 9th, 2009 at 12:27 pm
U.S. politicians are once again working overtime to screw Americans. Given this, why on God’s Earth would any young man sign up to “serve his country” (ie. in the military)???
These fools who join the military are just that, fools.
Read the article I wrote on this topic:
http://immigration-globalizati.....er-by.html
July 9th, 2009 at 12:28 pm
It’s Time To WAKE UP!
If your feeling something’s just “not right” lately…our dead on! Our Federal Government is going for broke on a quick take over of the U.S. Republic. We are NOT a Democracy and never have been. It is a lie pushed through by the mass media. We were established as a Constitutional Republic, which respects individual State’s rights. Here is a place for information:
http://www.thegrandawakening.com/
July 9th, 2009 at 12:30 pm
U.S. politicians are once again working overtime to screw Americans. Given this, why on God’s Earth would any young man sign up to “serve his country” (ie. in the military)???
These fools who join the military are being used.
Read the article I wrote on this topic:
http://immigration-globalizati.....er-by.html
July 9th, 2009 at 3:12 pm
how can anyone save if the jobs available only pay enough so you have to team up with one or two roomates? and then when you lose one of those jobs it takes like 6 months to find another one?
July 9th, 2009 at 3:15 pm
We have been in an inflationary period every since we were forced off the gold standard. I read somewhere a while back the the US $ is now worth about 9cts. I would say less. I don’t care about stagflation or whatever stupid word is being bandied about these days. Once the trillions in “stimulas” money trickles down and hits the streets, you will need a truckload of dollars to buy a loaf of bread. Inflation is defined as the “excess printing of paper dollars.” It is not caused by boom and bust cycles or anything else. The Federal Reserve, which is owned by a private cartel of 12 banks, decides which boom or bust cycle the public gets. This is a deliberate crashing of the country so the Elites can usher in the NWO on the backs of a desparate and destroyed citizenry. Better count your chickens, they’ll be hatching soon.
July 9th, 2009 at 3:47 pm
Too bad the majority of the population still has their heads in the sand and still watch ABCNNBBCBS to get their “FACTS”.
Sometimes I wonder if the shit they put on here isn’t part of their Propaganda Campaign.
July 9th, 2009 at 6:04 pm
Where the hell’s my check ??????
July 9th, 2009 at 6:43 pm
Baby Boomers are the result of pent up semen. Imagine if there were internet porn in the 50’s.
More men would beat their meat and the population wouldn’t have grown so fast. Masturbation is premature abortion and if men could get pregnant, abortion would be the norm. If life were sacred we’d all live forever.
July 9th, 2009 at 6:59 pm
ALL I want to know is, WHERE THE HELL’S MY CHECK !!!!!!!
meanjean Reply:
July 9th, 2009 at 8:06 pm
IT’S IN THE MAIL!!!!!!! YOU HALF WITTED WACK JOB!!!!!
July 9th, 2009 at 7:21 pm
PRAISE GOD & PASS THE AMMUNITION !!!!!!!
July 9th, 2009 at 7:21 pm
In the next 20 years the population pyramid will be bigger on the top than the bottom. This will have negative consequences for all of us. I think it may be a reason why no one wants to close the borders, they are trying to artifically inflate the bottom of the pyramid to be larger than the top. A collapsed economy will benefit no one. I guess it’s time to learn spanish.
July 9th, 2009 at 8:45 pm
Putting water in your gas tank because you are running on empty in the middle of the desert, isn’t a good solution, even if you rationalize that it is better than nothing. It isn’t. It won’t work. So doing it is a bad idea.
The problem is that the correct thing to do, which is to allow the banks to fail, the debt to default, and the fallout to occur, doesn’t sit well for Washington or the banks. But that is the correct thing to do. You cannot bail out uncompetitive entities, and “create jobs” by siphoning off the resources of the productive and competitive, and redirect them to those unproductive or uncompetitive, and have it do anything but destroy investment and incentives for the productive. You may “create jobs” but it is a false creation, as NET the number of jobs must decline over time, as the government make work projects won’t employ capital in a manner that actually creates new jobs – it will merely trade those more competitive jobs that would have been created, for fewer uncompetitive jobs, which will ultimately fix nothing, and will hurt the country.
July 9th, 2009 at 9:53 pm
If you are in debt, file for bankruptcy and stick the toxic financial waste on the banks who are getting bailed out by our tax money. Use the system the way it uses your labor to enrich the banks…
July 9th, 2009 at 10:47 pm
Boomers have been fucking society since their so-called revolution in the sixties. Their greed and wanton disrespect for others is part of our problem. May they rot in fucking hell!
July 10th, 2009 at 1:21 am
Some probably do believe that the end of these troubled times is just around the corner, but as history has shown that is most likely not the case. America will be feeling the effects of this downturn for years to come, especially with the working population growing faster than employment opportunities are created. I have faith in my country and don’t believe that we will still not be out of this situation 20 years later as the case of Japan is described; we have seen the error of our ways and have made necessary changes to begin the rebuilding of our economy. The momentum is still in the backward direction, but we are applying the force to get the economy rolling forward again.
LB: UWF
July 10th, 2009 at 1:53 am
Lb, you are smoking crack. But if it makes you believe that the powers that be are making the right decisions to help this economy recover vs. Making it worse and it expanding their control over it,
then by all means, keep smoking crack
as they say, ignorance is bliss
keep watching the global temperature go down, keep watching them lie and say it’s getting warmer
and by all means, enjoy your 50-90% higher electric, gas, gasoline and food bills
and we can enjoy this great recovery together!