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Watch out for the wave

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33

April 28, 2009 – Comments (11) | RELATED TICKERS: BOOM , S , R

Man this thing is awesome.  Check out the cool chart that I just found over on the Calculated Risk blog.  I've been talking for a while that a lot of the growth that we've seen in the U.S. economy over the past two decades was fueled by leverage, an unsustainable lack of saving / increase in debt, and perhaps most of all by the largest generation ever...Baby Boomers...entering their peak spending years.

Watch the wave move on the graph above and wave goodbye to the largest generation of consumers ever.  Consumer spending accounts for around 2/3 of the U.S. economy.  At the very best, it will remain flat for years to come and it will likely contract.  Where is the economic growth that everyone expects to return in 2010 and beyond going to come from?  The very thing that served as a tailwind for the economy in the recent past will now act as a headwind.

I'm not predicting the end of the world, just an end to the 3%+ U.S. GDP growth that many have come to see as "normal."  This is going to be a problem because many pension funds as well as the state and federal budgets are using assumptions about future growth rates that I believe are unrealistic.  That means that we either have to stop promising so much to retirees, reduce government spending, or increase taxes in the future.  Any significant future tax increases would serve as an additional drag on growth.

Kudos Calculated Risk for the cool chart.

Deej

11 Comments – Post Your Own

#1) On April 28, 2009 at 3:15 PM, lenri (71.35) wrote:

That chart is cool.

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#2) On April 28, 2009 at 3:15 PM, lenri (71.35) wrote:

That chart is cool.

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#3) On April 28, 2009 at 4:03 PM, Paxtor (28.78) wrote:

That chart is cool.

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#4) On April 28, 2009 at 4:44 PM, BGriffinFlorida (26.45) wrote:

That chart is cool.

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#5) On April 28, 2009 at 4:48 PM, dbhealy (38.53) wrote:

That chart is c..... hey, wait a minute!  ok yeah, it is cool :)

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#6) On April 28, 2009 at 4:52 PM, awallejr (85.46) wrote:

Companies that will continue to fair well, at least for a couple decades, are the ones that will "follow the age group."

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#7) On April 28, 2009 at 5:04 PM, motleyanimal (88.08) wrote:

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#8) On April 28, 2009 at 9:49 PM, cclogic77 (25.22) wrote:

nifty graph... with a very scary message!

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#9) On April 29, 2009 at 11:49 AM, OleDrippy (34.85) wrote:

Agreed.. Great chart.

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#10) On April 29, 2009 at 5:52 PM, bridgeboy0 (30.63) wrote:

I wish I could pause the chart to look at things more carefully.  Doesn't it look like there was a bump up in the birth rate in the chart for the 1990.  How long until that generation starts consuming?

Also the wave looks like it is in the 40-60 year old range as of 2005.  To what age do you think those people are going to live?  I don't think were going to see a sudden drop off in the near future, based on the current estimates for longevity.

So is it that we're in trouble because the boomers are going to siphon off social security or is it because the boomers are going to stop buying stuff and die off?  I think the chart shows that people are living a lot longer than they used to (and they are still going to be buying stuff in their 70's and 80's).

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#11) On April 29, 2009 at 6:18 PM, awallejr (85.46) wrote:

Well, obviously boomers are going to start dying off, but the key in my opinion is figuring out their eventual new spending habits.  I don't think boomers will simply cease buying things, they will just be buying different things.  I also suspect you will see more boomers working part time into retirement, either out of necessity or boredom.

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