Baby Boomers are Poised to Create the Greatest Depression in History
In just a year or two due to demographics, and totally unrelated to the ongoing sub-prime and debt based crises, America (24% of the world’s GDP) descends into an inevitable thirteen year economic decline of unprecedented magnitude. The numbers show that financially it will be worse than the Great Depression of the 1930s. My 2002 book The Great Bust Ahead predicted that this unprecedented US depression will begin no later than 2013, driven by a relentless and massive decline in the number of big-spending 45 to 54 year old aging baby-boomers from 2013 to 2025. The American downturn will also be matched in Western Europe (25% of the world’s GDP) most of which has similar demographics. For good measure, Japan (9% of the world’s GDP) also goes into a similar fourteen year demographic decline at the very same time. Just as baby-boomers’ big-spending inevitably created the greatest boom in history starting in the mid 1980s, the decline in their big-spending starting no later than 2013 will inevitably create the greatest depression in history. Let’s see why:
It is a well-established fact accepted by all economists that around 65% to70% of the American GDP is simply consumers spending. When national and local government expenditures, first taken in from consumers as taxes of all kinds (averaging about 28% in the US per The Tax Foundation) are included, it is more like 90%. It is therefore only commonsense that the long-term trend of the economy must be controlled somehow by this absolutely massive consumer spending component. In the short-term (1 to 3 years) many factors, such as war, terrorism, corruption and scandalous behavior by corporations and the government can seriously affect the economy, but in the long-term they are always sideshows to the much bigger “hidden” picture. To figure out what is happening in this hidden picture we must look at who we the consumers are with regard to our ability to spend. Obviously, a thousand middle-aged people earning and spending $50,000 a year are going to have a vastly different effect on the economy (GDP) than a thousand 15 year-old teenagers spending an allowance of $1,000 a year. According to data published by the US Bureau of Labor Statistics the group with the biggest spending historically is the 45-54 year-olds. This makes total sense. They are at their
peak earnings with huge matching expenditures to support teenagers, sons and daughters at college, their biggest mortgage, their best cars etc. If a five year moving average (for smoothing) within the 45 to 54 year olds are plotted against the Dow Jones Industrial Average (adjusted for inflation), an absolutely stunning correlation is revealed covering almost a century as shown in the chart. For these simple and understandable reasons, the chart is showing us that the size of this dominant big-spending age group is the time-tested bellwether of the long-term economy trend at all times. Since 2007 we have been in a “detour” caused by the sub-prime and debt crises. The strong upward trend in the bellwether “spending” demographic that continues through 2012 in the chart is what prevented, and is still preventing, an economic collapse. The chart shows us in no uncertain terms that that an unprecedented massive collapse in the economy (from B to C) will occur starting no later than 2013 and last until 2025 as the bulk of the US baby-boomers relentlessly slip beyond their big-spending GDP-driving 45-54 years.
It is critical to understand that the B to C boomer demographics driven decline is as inevitable as their A to B boom was, and cannot be changed because the demographic cannot be changed. As shown in the chart, 45-54 age group demographic driven major declines happened rapidly in the early 1930s, slowly (thank goodness) in the 1970s, and will happen again from about 2013 to 2025, rapidly, relentlessly and catastrophically. Important note: This coming
decline is NOT the baby-boomers retiring. Many make this mistake. Retirements do not begin for 11 to 20 years beyond their big-spending ages of 45-54 years.
2012: By looking at the chart it is now quite clear that the USA may only have left a year or so at most of demographically driven growth with an accompanying rise in the economy and DJIA. This is clearly being muted currently by the manmade sub-prime and debt crises and their ongoing aftermath. As noted earlier, there may in fact be no years left and the economic decline could begin at any time. In the chart compare the drop in the demographic curve in the 1930-35 period of the Great Depression to the monstrous drop coming in 2013-2025. 2013 to 2025: The show is well and truly over. Just like Japan in the 1990s, no amount of stimulation or any form of economic mouth-to-mouth is going to make a bit of difference. As the chart shows, from 2013 latest to 2025 the big-spending 45 to 54 year-olds that history clearly shows control the long-term trend of the economy, are only there in relentlessly declining numbers. Just how big is this catastrophic depression going to be financially? In the US stock market crash from 1929 to 1932, the value of stocks dropped approximately $90 billion. When expressed in year 2000 dollars and adjusted to match the size of the US population now versus then (300M vs 123M), this is a drop of about 2.6 Trillion dollars. It directly affected the less than five percent of the US population who owned stocks at the time. The population at large was affected by job loss, bank failures and the ensuing poverty. When the 2013 to 2025 markets’ decline shown in the chart is converted with simple arithmetic to the loss in the value of all stocks in the same year 2000 dollars it is a staggering 14 Trillion dollars. This is over five times as bad as 1929 to 1932. This time the loss will directly affect the more than fifty percent of the US that now own stocks either directly or in mutual funds, pension plans, IRAs and 401K type savings plans. It will be a financial holocaust. In the depths of the Great Depression of the 1930s, US unemployment reached 25%. With a depression that is financially much deeper than the 1930s, what will unemployment reach this time?
Demographics have demonstrated an ability using a solid “commonsense” rationale to accurately forecast the long-term trend of the American economy with stunning accuracy for nearly a century. No other economic theory can do this for even twenty years let alone a century. It offers a shocking message on what is very shortly going to happen to America, Europe and Japan and, through their economic dependence on the West and Japan, sideswipe much of the rest of the world. Our immutable demographics make it virtually inevitable that this depression will happen. It’s nobody’s fault. It cannot be fixed or wished away. It’s just as unstoppable as a tidal wave. We have to accept the reality that it is coming, and plan for it as best we can. Imagine it is 1928 and we know with certainty that the crash of 1929-32 and the depression of the 1930s are coming. What should we do? The precious little time that is now left must be used to its fullest. It still won’t be enough time for most, but at least forewarned is forearmed. A further warning: everyone is aware of the coming massive financial crises for Social Security, Medicare and Medicaid. However, no one is factoring in that these crises will be preceded by a massive depression lasting many years that will dramatically reduce the tax revenue flowing in to support these programs. In other words they are in even worse shape than the direst of current predictions.
© Copyright 2012 Daniel Arnold and Vorago-US. All rights reserved.
Dan Arnold, who lives in California, holds Bachelor and Masters degrees from the Victoria University of Manchester in the UK. After a seventeen year management and consulting career with The General Electric Company in the USA, he created and ran a small successful manufacturing company in Santa Clara County California for ten years. After being bought out by a larger company in 1991 he focused on understanding the economy’s long- term trends which resulted in his highly focused brief “reference guide” book, The Great Bust Ahead. Published in late 2002, ISBN 159196153X, it was continuously in the top 1% of amazon book sale rankings every day for over six years. Every prediction made in the book has so far come true.