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The Trouble with Demographics

|Includes: EEM, FXI, SDS, ProShares UltraShort 20+ Year Treasury ETF (TBT), TDF

I have written in the past how the American demographics (actually, all the developed world) will work against an economic recovery / expansion going forward.  In today's post by David Rosenberg, he writes extensively about this major overhang to the recovery of the American economy.  We have only reduced our debt overhang caused by the meltdown in 2008 by $1T. There is still $6T to go. How will this overhang get paid down without impacting economic growth in a demographically challenged (aging) market? It seems like there is no way to reconcile this problem, other than through painful saving and resultant economic stagnation (as consumption dollars are transferred to debt reduction). This is the exact setup for a long period of economic non-performance such as has been experienced in Japan the past 20 years.

Here is an article in today's WSJ, "Obstacle to Deficit Cutting", that makes this same point in detail.  It also exposes the economic problems with "leveling the playing field" as the current administration desparately wants to do.  Entitlements are never the path to economic well being, for the taxed, or the beneficiaries of transfer payments.  Instead, the focus should be on paying down the debt and training and motivating the population to adapt to the modern, non-blue collar, economic era.

In the meantime, the economic winds will be at the back of the emerging world which will have little economic competition from "The West" during this same period. America benefited from the weakening of Japan as a competitor during the 1990s up until 2007. The BRIC nations will benefit in the same way from the Euro/American block of nations being tied up in deficit reduction for the next 20 years.

 

 



Disclosure: I am long through call options, EEM and FXI as a way to play the devloping world. TDF, a closed end fund, is another good option in place of FXI. I am short the American market via SDS.