America's Unhappy New Year

The Baby Boom officially begins crashing this year. Some Baby Boomers began retiring early, but the big retirement Crash begins now and will go on for many years.

This is a crashing demographic wave that is also a massive financial and economic crash. The peak income years of this large wave of Americans now suddenly and steadily drops for many years to come as more and more of them retire. Their disposable income and actual consumer spending will likely be far less than was expected a few years ago because of the massive drops in retirement savings and the soaring costs of health care which will demand far more frugal living than was true of their predecessor waves of retirees. This will be even greater as they suddenly realize that the Obama Central Plan for Medicare Cost Cuts will force them to pay far more of their own medical costs.

At the same time, this growing tsunami-crash of retirements will produce a soaring tsunami of government expenditures for Medicare/Medicaid, in spite of the cuts now in the works which are not remotely enough to cut the soaring overall costs of these vast programs.

And the growing wave of Baby Boom retirees will also produce soaring government expenditures for the vast Social Security payments, because the government has spent their “contributions” to the system and given the SS “Trust” non-negotiable bonds — IOU’s that now come due to pay the soaring costs for these retirees. The government will be forced to borrow trillions more to pay for these costs at the same time its revenues are sinking and it is borrowing trillions to pay for other costs from the Great Financial Crisis.

This coming together of a great demographic crash with other crashing markets and a soaring great wave of government borrowing and expenditures will multiply all of the financial and economic problems the U.S. faces for many years to come.

Harry Dent and his research organization have been studying the vast, long-term effects of such huge demographic and other waves for the past three decades. Their latest analysis of this huge wave’s effects leads them to predict The Great Depression Ahead [Free Press, 2009], beginning in about 2010 with another crash of real estate, stocks, Big Banks, and commodities. They also argue that the High Tech innovation and investment wave is cresting and will lead to lower investment and profits, which will also multiply the downturns in markets and government revenues. This one highly successful new U.S. industry that actually produces something other than paper assets with phony AAA ratings is also under soaring pressures from Asian competitors [and has only held up as well as it has at home by importing Asian scientists and engineers massively, who now take their knowledge home with them].

It is easy to see what massive downward pressures this will put on business profits, stock prices, investment, commodity prices, and so on. U.S. stocks are already vastly overpriced in terms of historic price-earnings ratios. [Calculated on the standard, average ten preceding years earnings on today’s prices the p-e is 20. If the real rates of inflation are factored in, it is much higher, probably close to the 1929 high of about 29 just before the Crash. Markets have been anticipating growing corporate profits which are not materializing and which will most likely sink fast as the Baby Boom tsunami crashes and the Social Security government borrowing tsunami grows and drives up bond rates and borrowing costs for corporations.]

The U.S. financial planners in the White House have not been unmindful of the great dangers we will face as these new waves multiply the already crashing tsunamis of almost all the big markets. [The U.S. Treasury bond market, the biggest and most dangerous of them all, has not crashed, but it has been leaking faster for months — long-term rates have been soaring as the government net new borrowing soars and the roll-overs of old bonds has reached a historic peak and the net purchases of U.S. paper assets from abroad have actually turned slightly negative because of the falling dollar and soaring U.S. bond sales — a very dangerous sign, since the U.S. has to borrow trillions abroad to meet its soaring financial needs.] I believe this is why they pulled out all the sanity-stops and went for broke with the vast pop-Keynesian program. They desperately wanted to produce a V-shaped recovery, so that real estate prices, consumption, investment, profits, stock prices, commodity prices, etc., would all move up together and reinforce each other synergistically. That has not happened. The vast outpouring of trillions in all possible ways has done little to stem the vast tide of losses and has produced a meagre crop of pale-green shoots.

At the same time, the U.S. Imperial Bubble continues to crash. The U.S. has been paying vastly more and more to maintain its Global Empire while the returns on this vast expenditure that distorts our whole economy away from productive investments have been sinking faster and faster into the negative netherworld. Obama, like Bush before him, seems to start a new war with vast costs every few months. He has already doubled the U.S. costs in Afghanistan, sent costs in Pakistan soaring, and has committed unknown but soaring U.S. assets to fight civil wars in Colombia, Yemen, Baluchistan, and Mexico. That’s like cutting your wrists when you already are dying from congestive heart failure and leukemia.

Well, as Sarah Palin would say with a wan but winsome smile, “Miracles can still happen! Can’t they?”

Perhaps so, Sarah, but in financial matters God obviously helps those who first help themselves by not committing suicide. After all, it does not take omniscience to see that financial suicides are bad risks. Besides, it’s much better just to invest in sane nations.