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Japan, Aging Population, Growing Debt...



February 25, 2010 – Comments (5)

There is an awesome Scribd in this Big Picture post that seems to pull together a lot of my market thoughts.

The slide show tells the story of what Japan did and the similarities of path seem amazingly close.  The author, Katsenelson, claims Japan is past the point of no return because of debt.  I tend to think without serious reform many developed countries will follow.

Check out slide 8, Japan has a declining population.  I have said something similar a few times about an aging population "As people get older their incomes start to decline, their expenses (health care) rise, their savings rate drops.  Their demand for bonds will drop as well- Japanese will become net sellers of bonds."

I have said expect demand for stocks to decline as the population ages.  Here's something else, what do you expect the younger generation inheriting the wealth to do?  They have had far less opportunity to accumulate wealth and have been debt slaves their whole lives.  My guess, they will pay off debt and that money will be pulled from investments.

The birth rate is low because the economy is hard and young people delay starting family under those circumstance.  The tend to have less children or even no children.  Their fertility rate is the lowest in the world because the burden on the young people is the highest.  People delay starting families and biological clocks run out while people are trying to gain financial stability.

They have hit end game on low interest rates, they can no longer lower them to keep costs down, and I suspect if interest rates were priced for risk many countries would be in trouble right now as well.

Yikes, slide 12, not only is the population aging, it is declining, that increases the debt burden per person.  I can not see with the economic burden and lack of opportunity how the birth rate stays up in North America.  Canada was bring almost out of control debt under control in my early adult years and look what it did to our birth rate.



5 Comments – Post Your Own

#1) On February 25, 2010 at 7:54 AM, dbjella (< 20) wrote:

Do you think the central banks of Japan and the US buy each others bonds in their respective countries to keep up the demand?  

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#2) On February 25, 2010 at 8:53 AM, dwot (29.03) wrote:

No idea.

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#3) On February 25, 2010 at 2:41 PM, lucas1985 (< 20) wrote:

A different perspective:
"Japan is one of the most crowded countries in the world. It hires people to push commuters into over-packed Tokyo subway cars during rush hours. Given its overcrowding, it is difficult to see why the Japanese people should view the prospect of the declining population as a crisis, as the Washington Post argues in a "news" story.
In fact, Japan's economy continues to produce far more than it consumes, which is why it has a trade surplus, something that appears in the Post article as a serious negative. In fact, economists would argue that this is exactly what a country with an aging population should be doing: running trade surpluses so that it can draw on foreign assets in future decades.
It is not clear what sort of crisis the Post envisions from the aging of Japan's population. It seems to believe that Japan will face a labor shortage, but of course this is the opposite of the situation at present where its economy is operating far below full employment. In the future, if its economy does begin to reach full employment levels of output, then this would simply mean that labor goes from less productive jobs to more productive jobs. This is a process that always happens in growing economies. That would mean that positions in some less productive jobs, like the Tokyo subway people packers, may go unflled.

-Dean Baker "

It's also useful to question our assumptions about endless economic growth

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#4) On February 25, 2010 at 9:14 PM, dwot (29.03) wrote:

Lucas, I think their projections on where the population numbers are going are completely wrong.  I expect life expectance to dramatically decline as Japan was predominately a non-smoking nation before World War II.  They went up to something like 80% of males smoking by the 60s or 70s so they should have two generations with similar mortality rates and the generation of new seniors will not live as long as they are projected to live.

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#5) On February 27, 2010 at 1:40 AM, checklist34 (98.60) wrote:

well, we have a few things different than japan.

one is population growth, we still have it.  The baby boomers moving into retirement will no doubt have some strange effects, however.  They will become net spenders rather than net savers.  That is a potential catalyst for keeping the market in the toilet for years, there may be alot of supply of stock.  That noted, the bear markets of the last 10 years have no doubt shaken alot of their money out, much as the rampant bull market of 1982-2000 was probably significantly fueled by them putting money in.  

two is the worlds reserve currency.  Japan never successfully inflated their way out of their problems.  If they could have driven the yen weaker, it may have been a game changer.  Will we have the same problem?  Will we be able to force inflation if need be?  Probably...  

Three is a far more innovative culture.  Even done biz with the japanese?  They are by far followers and copier and ripper-offers (albeit willing to make improvements), but what, name one, big game changing world altering idea ever originated in Japan?  Or Asia for that matter?  I have heard numerous persons in the massive multinational company that bought my businesses in 2008 complain about the complete lack of innovation from Asia.  That has been our saving grace now for ages - the US, more than any other nation, invents and innovates.  The real threat to that strength of our country is cultural.  We have become financiers and hedge fund managers and bankers and lawyers and welfare abusers.  We, as a culture (blame hollywood and liberals in no small part) have lost our esteem for the very things that made us great.  It was ALWAYS greed that made America great, that has always been our BEST virtue.  But it was productive greed.  Standard oil and railroads and steel and construction and manufacturing made fortunes in this country ... now its... hedge fund managers?  Really?  That has to end, the banks need to come to serve real businesses once again.

We teeter on an edge.  We aren't nearly as far removed from what has made us the greatest nation in world history (think about it, no other empire dominated as thoroughly as long without actually conquering and seizing assets from around the world) as fear-mongers and liberals (liberals fkng suck, that is not an endorsement for conservative politics) and the like would lead us to believe.

But we also aren't what we once were.  We need to ditch the pointless unproductive paths to wealth and focus once again on our greatest talent:  we are the greatest collection of ambition in world history.  Ever.  We can invent and produce like no other collection of humans anywhere, at any point in history.

Why would that be?  Imagine you were in a small belgian countryside pub in 1880.  3 boys are sitting there talking.  One, wide eyed and ranting, tells how in america you can make a fortune, you aren't born into peasanthood, you can do anything.  He heard of a guy who made a fortune and has a mansion, from the next town.  He is going, he says, going to New York City.  

The other two tell him he is an idiot, stay on the farm, its fine here, its nice here, we live, shut up.

We fleeced the world of its most ambitious persons for a century or two.  We are a collection of people like me, people who look at the worl dand say "screw it, why not me?". 

Our long slow slide into socialism and this pervrese sense of entitlement and the massive power of unions threatens to destroy that now.

We are not lost, nor hardly, we could easily dominate this century as we did the last.  

But we need to turn away from unproductive things like hedgies and personal injury attorneys and bankers making the biggest bucks and return to a society that best rewards productive citizens.

Or we will fail.

For homework, spend a day or a week or a month thinking about what slice of the population is most encouraging of unproductive paths to wealth, most promoting of liberal socialist anti-industry crap.  And then a path will be clear.

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