Thursday, August 26, 2010

Demographic Winter Coming

About 10 years ago, Mark Belling mentioned 'demographics' as part of one of his monologues. I recall that because, until he mentioned it, I hadn't given demographics much thought.

Others have, such as Goldman at First Things.

There will be no housing recovery, I wrote in “Demographics and Depression.” Since 1970, the population has grown by fifty percent, from 200 to 300 million, yet the country has the same number of two-parent families with children then as now—just 25 million. In 1973, the United States had roughly the same number of family homes (those with three or more bedrooms) as the number of families. By 2005, the number of family homes had doubled even though the number of two-parent families with children had stayed the same.

Consumer spending would not return, I argued, because after asset values went down $15 trillion reduction, Americans had started saving as much as they could. If everyone is saving and no one is spending the economy will shut down. The problem, I wrote, “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.”

By the way, Belling seems to have forgotten about demographics in the interim. The other day, he was ranting about how "interest rates are going UP!!!!!!!" for home mortgages.

Not if you take the linked essay seriously, they won't.

The Baby Boomers are saving like crazy AND reducing debt as fast as possible. Those savings are going into T-bonds and banks; note the Bloomberg article I cited this morning about banks now (effectively) CHARGING you to hold your savings.

Since Boomers have most of the money--such as it is--and they are stuffing it into savings instruments, rates will NOT rise; at least not markedly, nor quickly.

Goldman is not the only one to notice demographics. The WSJ and Goldman Sachs both noticed, too.

So here's the new mantra: BUY MORE AMMO. HAVE MORE BABIES!!

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