Comments on: Investing and Demographics http://alephblog.com/2008/08/26/investing-and-demographics/ Helping Institutions and Ordinary People Invest Better by Focusing on Risk Control Sun, 12 Feb 2012 22:02:53 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Markhttp://alephblog.com/2008/08/26/investing-and-demographics/comment-page-1/#comment-18446 Mark Wed, 27 Aug 2008 03:05:16 +0000 http://alephblog.com/?p=850#comment-18446 David (and reader), The answer lies in the Modigliani-Brumberg Life Cycle Hypothesis, of which the core component is consumption smoothing. It is interesting you mention Japan, b/c they have practically become the case study as to how declining saving rates can result in significant economic declines spanning generations. Demographics have played a key role in the economic disparities of Japan’s saving rate. Paul Krugman is a great resource for this subject and he connected the link between Japan’s declining birth rate and the aging society, leading to a decreasing population of the workforce. Meanwhile, the amount of people at the age of retirement continues to increase. Japan’s population, income and savings indicate that Japanese consumers should be forgoing consumption and instead saving in efforts to support the increasing number of people in retirement. However, given the declining number of younger consumers that should be at peak utility, there is an imbalance between those that are saving more for consumption later and those who are consuming what they should have previously saved. This story goes on and on, but we can easily compare Japan's position approx 25 yrs ago to the US today. However, if the US finds itself in a situation in 25 yrs where Japan is today, the global effects will be much more extreme and for people in my generation (and the reader who posed the question), there is indeed plenty of reason to be concerned. -Mark David (and reader),

The answer lies in the Modigliani-Brumberg Life Cycle Hypothesis, of which the core component is consumption smoothing. It is interesting you mention Japan, b/c they have practically become the case study as to how declining saving rates can result in significant economic declines spanning generations. Demographics have played a key role in the economic disparities of Japan’s saving rate. Paul Krugman is a great resource for this subject and he connected the link between Japan’s declining birth rate and the aging society, leading to a decreasing population of the workforce. Meanwhile, the amount of people at the age of retirement continues to increase. Japan’s population, income and savings indicate that Japanese consumers should be forgoing consumption and instead saving in efforts to support the increasing number of people in retirement. However, given the declining number of younger consumers that should be at peak utility, there is an imbalance between those that are saving more for consumption later and those who are consuming what they should have previously saved. This story goes on and on, but we can easily compare Japan’s position approx 25 yrs ago to the US today. However, if the US finds itself in a situation in 25 yrs where Japan is today, the global effects will be much more extreme and for people in my generation (and the reader who posed the question), there is indeed plenty of reason to be concerned.

-Mark

]]> By: Hans1http://alephblog.com/2008/08/26/investing-and-demographics/comment-page-1/#comment-18444 Hans1 Wed, 27 Aug 2008 00:52:44 +0000 http://alephblog.com/?p=850#comment-18444 I have been wondering about boomers for some time. I believe the majority of them have negative net worth, and will pass on leaving large balances due on their mortgages, car loans and credit card bills. This will produce more losses the banks will have to deal with. Some will even game the system, running up larger and larger balances knowing full well that they will never be paid down. I have been wondering about boomers for some time. I believe the majority of them have negative net worth, and will pass on leaving large balances due on their mortgages, car loans and credit card bills. This will produce more losses the banks will have to deal with.

Some will even game the system, running up larger and larger balances knowing full well that they will never be paid down.

]]> By: matthttp://alephblog.com/2008/08/26/investing-and-demographics/comment-page-1/#comment-18441 matt Tue, 26 Aug 2008 21:47:26 +0000 http://alephblog.com/?p=850#comment-18441 Can you please reconcile these two seemingly conflicting statements: "[Boomers] will need to labor longer, and they should do so" and "To the extent that this causes labor shortages, the US will see greater employment prospects for its people" If they work longer, there won't be labor shortages (perhaps intergenerational warfare, instead). Can you please reconcile these two seemingly conflicting statements:

“[Boomers] will need to labor longer, and they should do so” and “To the extent that this causes labor shortages, the US will see greater employment prospects for its people”

If they work longer, there won’t be labor shortages (perhaps intergenerational warfare, instead).

]]> By: maynardGkeyneshttp://alephblog.com/2008/08/26/investing-and-demographics/comment-page-1/#comment-18439 maynardGkeynes Tue, 26 Aug 2008 20:25:14 +0000 http://alephblog.com/?p=850#comment-18439 Jeremy Siegel (Stocks for the Long Run) offers a pretty thorough and generally optimistic take on the Baby Boomer retirement issue in his latest book "The Future for Investors." At the risk of oversimplifying a complex analysis, Siegel's bottom line is that while there are not enough younger generation Americans to absorb the Boomers stock and bond assets at current prices, investors in emerging countries, like China and India, will more than make up for that and will end up buying the Baby Boomer's paper assets as the Boomers sell them off to fund their retirements. The upshot is that foreigners will end up owning a lot of our companies by the year 2050. A potential snag, says Siegel, is whether America will be willing to let this happen, or will pass laws or adopt polices to discourage the transfer of US assets to foreign countries. This remains to be seen, but he is optimistic. On the other hand, the implications for the typical Baby Boomer's most important asset, his or her house, is rather dire, because homes can't be sold as readily to foreigners, for obvious reasons. Siegel doesn't provide an answer for the housing market, which is outside the scope of a book on stock investing in any event. Jeremy Siegel (Stocks for the Long Run) offers a pretty thorough and generally optimistic take on the Baby Boomer retirement issue in his latest book “The Future for Investors.” At the risk of oversimplifying a complex analysis, Siegel’s bottom line is that while there are not enough younger generation Americans to absorb the Boomers stock and bond assets at current prices, investors in emerging countries, like China and India, will more than make up for that and will end up buying the Baby Boomer’s paper assets as the Boomers sell them off to fund their retirements. The upshot is that foreigners will end up owning a lot of our companies by the year 2050. A potential snag, says Siegel, is whether America will be willing to let this happen, or will pass laws or adopt polices to discourage the transfer of US assets to foreign countries. This remains to be seen, but he is optimistic. On the other hand, the implications for the typical Baby Boomer’s most important asset, his or her house, is rather dire, because homes can’t be sold as readily to foreigners, for obvious reasons. Siegel doesn’t provide an answer for the housing market, which is outside the scope of a book on stock investing in any event.

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