The OTHER Economic Crisis

Check out the full article here: Courtesy of zerohedge

You know all about the subprime, alt-a, option arm, and commercial real estate crises. You're well-aware of the house of cards built with credit default swaps, securitized assets and other exotic investments. You've heard about the massive debt overhang threatening individuals, companies and the country as a whole, and the massive de-leveraging which is still to occur. You're aware of the soaring unemployment rate, the tapped out consumer, and many other economic problems.

But do you know about the demographic crisis?

Specifically, they say that the basic health of any country's economy is largely driven by the number of its citizens who are in their peak spending years.

For example, the peak Japanese spending range has been estimated to be comprised of 39-43 year olds. The more 39-43 year olds Japan has at any given time, the more consumer spending there will be, as these are the folks who are the big spenders in Japan. Dent argues that the Japanese economy will tend to grow when the number of 39-43 year olds grows, and to shrink when it shrinks.

In the U.S., Dent says, 46-50 year olds are the biggest spenders, because that is when - on average - they are paying for their kids' college, paying mortgage on the biggest house they will own during their life, and making other big-ticket purchases.

Claus Vogt agrees, saying that - all other things being equal - the country with the youngest population will experience the biggest growth in the future, as it will have the highest percentage of productive people in the days ahead (Modigliani's age categories are somewhat different from Dent's and Vogt's, but - in general - people are having children later than they were in 1985).

Whether or not you believe Modigliani , Dent and Vogt, it should be obvious that countries with a large percentage of elderly people and a small proportion of productive workers will have less productive output and a larger demand for social services than those with a higher percentage of workers. It should also be obvious that this will tend to drag down the economy.

What does all this mean?

Well, initially, it means that - in addition to everything else they have going for them - 2 of the BRIC countries (Brazil and India) have much more favorable demographics than the United States. So they are at a competitive advantage to America for demographic reasons in addition to the other reasons that people write about.

Moreover, Dent and another of the main writers focusing on the economic effect of age demographers - Daniel Arnold - say that America's aging demographics point to a major depression.

This is going to be a serious problem in the future, as it is for all countries when they experience population cycles. I encourage you to read the full article. Link at the top of the page.

Six Articles Showing The "Recession" Isn't Ending

• One Sixth of All Construction Loans in Trouble (MISH)
  
• FDIC Proposes Six-Month Extension for Debt Guarantees (Bloomberg)
• Record drop in consumer credit outstanding in July (Wells Fargo)
• Food Stamps Reach 33.8 Million in April, 5th Consecutive Monthly Record (MISH)
  
• The Fed Can't Monitor 'Systemic Risk' (WSJ)
• Greenspan, "Market Crisis Will Happen Again" (MISH)

Chart of Job Losses in Post WWII Recessions (MISH)

Excerpt from: Greenspan, "Market Crisis Will Happen Again" (MISH)

However despite his belief in a brighter future, the former Fed chief did warn that the path to recovery should steer clear of protectionism as applying strict regulations could hamper recent developments that have opened up global trade.

"The most recent endeavour to re-regulate is a reaction to the crisis. The extraordinary impact of these global markets is making a lot of financial people feeling they have lost control.

"The problem is you cannot have free global trade with highly restrictive, regulated domestic markets."

Ding Ding Ding we have a winner. Greenspan is correct "you cannot have free global trade with highly restrictive, regulated domestic markets."

And what bigger regulation is there than the Fed itself? The answer is "none". The Fed micro-mismanaged this crisis by its manipulative interest rate policies. Yet for all his faults, and Greenspan has many, the one thing he has consistently gotten correct is his stance in support of free trade.

Indeed, one of the biggest risks now to the global economy is a huge round of protectionism. Unfortunately, it's probably only a matter of time before Congress overreacts. That's human nature, Congressional style.

Blamed by some for not doing more to prevent the crisis, Mr Greenspan denied any responsibility for the problems gripping the global economy. "It's human nature, unless somebody can find a way to change human nature, we will have more crises and none of them will look like this because no two crises have anything in common, except human nature."

Human nature is is what allows people like Greenspan to never see their own role in the mess they created. It's human nature to blame someone else. The way to get Greenspan and Bernanke out of the way so that their "human nature" does not add to the problems is to abolish the Fed.