One of the most powerful economic driving forces is demographics. This is why a note sent by an alert reader has so much impact on our social security, our pensions and the U.S. dollar. What he says really makes sense…but…
Here is what the reader wrote.
“Gary, Europe and Japan have the same problem as the USA, regarding growing population of senior citizens in the future, and how the government will fund these social costs.
“I think it was the Economist recently wrote a story, which was about immigration policies, and said that the USA will grow into a 500 million nation, mainly from immigration. These new immigrants will pay for social security. Japan and Europe will not receive the same amount of immigrants as USA. So this is not a very likely reason to cause the US dollar to be sold off for Euros or Yen in my very honest opinion.”
I am aware of this article and in fact referred to it in a recent message which said,
The special report in the August 25 issue of the Economist entitled “Half a Billion Americans” explains that America's census in 2000 contained a shock. This census showed that a gap is opening in the fertility rate between the U.S. and Europe. America's population will soon be getting younger. By 2040 or even sooner, the U.S. population will overtake Europe's. In 1950 Europe had twice the population of the U.S. Fertility rates in both the U.S. and Europe were falling. Then suddenly in the 1980s the U.S. rate picked back up. It is projected that the U.S. would have 275 million people by 2000. Instead the number was 281 million, well beyond expectations.
This growing population is the (and about the only) answer to the baby boomer problem. More workers matched with new technology that brings even greater productivity paying tax can generate sufficient sums to pay off debt created now and during the boomers' retirement days.
This wave of new Americans will create more opportunity of every kind, health, housing, pollution control, waste management, environmental control, etc.
This is also why one of our areas of focus at this site (great places to be) is focusing now on Small Town USA now. “You can read this entire message at https://www.garyascott.com/articles/654/
This growing population is in one-way good news. One of the major demographic concerns we face is the retirement of 78 million baby boomers beginning in (I'll be 62 then) six years. Currently the federal government gets 47.8% of its revenues from personal income tax and 34.2% from Social Security, Medicare, etc. When those boomers stop paying in and start drawing out. Times could get rough! In addition the Government currently spends 23.4% of its spending on social security and 19.1% on Medicare Medicaid. That's nearly half of all expenditures and this is certain to grow, especially considering that 60% of these retiring boomers are overweight! Plus the Federal deficit has grown past six trillion dollars now. The debt service alone is huge.
Until I read this article I could not figure out how the numbers would work. But this growing population gives hope. The expanding masses create other problems though which we review tomorrow.
The reader above is right that Europe and Japan may not be so lucky and this does not bode well for these areas. However this does not necessarily mean that because the U.S. has an expanding population that the dollar will necessarily do well. These factors can push the buck down in the short term at least. These demographics won't come into play until 2030 or so (if the new generation of Americans are productive). In the meantime the U.S. government may have to borrow plenty more and this may exert even more pressure on the dollar before it recovers.
Right now, the huge and spiraling U.S. Federal debt and growing record trade deficit coupled with a retreat by foreign investors from Wall Street are putting pressure on the greenback. In addition there is a growing debt and real estate value problem that could force the government to spend even more, much more. This could push the dollar down even further before the demographic change brings it strength. For more on this go to https://www.garyascott.com/articles/210/ and https://www.garyascott.com/worldreports/121/
This is why investing in U.S. real estate makes sense (even if prices are currently too high). A falling U.S. dollar will create inflation and one of the best hedges against inflation is property. The growing population won't hurt property prices in the long term either. This is why borrowing Japanese yen to invest in tax liens may make a lot of sense now. For more on this go to www.garyascott.com/articles/700/
Until next message may wherever you are be great!