On January 1st, 2011, Kathleen Casey-Kirschling was the nation’s 1st baby boomer to turn 65, along with around 10,000 more. According to Pew Research, 10,000 of these Baby Boomers will be turning 65 each day throughout 2011. They continue, “26% of the total U.S. population are Baby Boomers…(this) will dramatically change the composition of the country.”
So with all of these baby boomers moving into retirement, how will this effect the financial markets for the working generation? How will this “dramatically change the composition of the country?”
Let’s look into the numbers a little bit deeper, and see what we if we can generate a conclusion.
In 2010, 12.9 percent of the population was over 65 years old (US Census Bureau). This means that almost 40 percent of the current population is retired, or will most likely be retiring, over the next 20 or so years (baby boomers are those age 45-65 currently).
By looking at the data (Baby Boomer Births and Birth Rates) we can easily see that from 1946-1965 there were 79.13 million births and from 1966-1985 there were 69.3 million births. So there is a significant difference in the number of births for the baby boomer generation.
Now that’s not the only problem. From 1926-1945 there were no more than 55 million births. So the spike from the baby boomers from the preceding generation was massive.
Now, when we look at supply and demand, we understand that market prices are going to go up based on demand. Also, the supply and demand of actual products purchased–and as volume of demand rises–this also is going to push market prices up.
We can see this translated into the market from 1980-2000, when there was a huge jump in market pricing.
This is because the demand was so high.
So what happens when all of these baby boomers start to retire. They begin to sell quantities of their investments. Supply goes up, demand goes down, and the result is a downward fall in market pricing. Theoretically.
Now also, in the actual product markets, there will be less products purchased, so demand will go down for purchased goods, resulting in fewer dollars made for companies, which also results in a lower market.
So, where can we estimate by these standards, there is a higher risk that prices will fall. Not to say that prices will fall, which I think is a fallacy to put such extreme terms on this, but that market pricing has a higher risk of falling as the baby boomers retire.
So how does this translate into your actual investments.
Stocks – have a higher risk of going down, even as the last 10 years have shown us market losses, this trend likely could continue to occur.
Mutual funds – same story. Higher risk of falling prices.
401k’s, IRA’s, etc – Because these investments are tied to current markets, they run the same risk as stocks and mutual funds, they have the ability to lose money. And the retiring wave coming could leave your 401k with a good deal of loss.
In conclusion, based on the data available, we can easily see that this will be the biggest wave of retirees that we have ever seen. This will not only affect the markets, but also all of our government sponsored plans such as Medicare, Medicaid, Social Security, etc.
Whatever the effect, this is going to be an extremely new situation that we have ever been in before, and coupled with the already massive government debt, this could take quite a toll on our future financial situation as a country.
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There will be money around and the idea of wise investment comes to mind – for my money it is gold, silver, commodities and energy. Here’s why
When Money Dies
The phrase refers to entropy of paper money – the kind printed by for instance the US government, in great abundance. At some point it will cease to exist as a form of [global] payment. Death of a currency does not take place overnight – we are currently seeing the familiar face of entropy…that what goes up must come down?
There is a tale told by Adam Fergusson in his book: When Money Dies – read it. It’s about the Nightmare of Deficit Spending, Devaluation, and Hyperinflation in…Weimar Germany! Yes, Germany in the twenties. It shows what can happen to printing paper money (read US dollar) and the ripple effects globally – it’s pure déjà vu!
If you don’t know what happened to the German Mark, here it comes:
In 1913, the Mark, the British shilling, the French franc and the Italian lira were worth about the same. Four or five of these would buy one dollar. By 1923, 10 years later you could exchange one shilling, franc or lira for up to 1 billion marks! No one wanted Marks in return for anything – it was dead.”How did that happen?
The short answer is that post-Imperial, Germany found itself facing a crushing load of debt – like we all do now. Raising taxes or cutting spending is politically difficult at any time and so it was in Germany. To deal with its debts, Germany chose the path of least resistance – it printed lots of money. Sounds familiar? Like the U.S. today, right?
Here we are today…progress choking deficits with no end in sight, piling on debt and entitlements with no end in sight, Sunni and Shiite bracing for war, oil prices going through the roof ($250/barrel), and…what solution have we found? – “Quantitative Easing!” You must be joking!
Fergusson writes:“Money may no longer be printed in the voluminous quantities of the 1920s, but, ‘quantitative easing,’ the modern euphemism for surreptitious deficit financing in an electronic era, can no less become an assault on monetary discipline.”
Back to Germany…
As prices rose and the Mark lost its purchasing power, German society began to dissolve whilst inflation started to wreak havoc. It started slowly, with commodity (!) prices rising everywhere. The damage caused was unbelievable.
In just 8 years since 1913, when incidentally the value of the US dollar was 95% higher than it is today, the price of bread in Germany rose 13-fold, beef 17-fold, sugar, milk, pork and potatoes 23-28-fold and butter 33-fold! In reality, prices were a third higher in the street.
Germany turned into a society looking for blame. As Fergusson writes: “They picked on other classes, other races, other political parties, other nations.” There was a long list of dislikes: “the greed of tourists and peasants, the selfishness of industrialists and profiteers, the existence of Jews, Gypsies and Homosexuals and speculators making fortunes in the money markets.” Sounds familiar? We have it here, too!
It’s interesting to see how German society in the ‘20s dealt with the entropy of currency. Real wealth became very important, not the wealth denominated abstract “printed” money, but real wealth that one could use, such as gold, silver, commodities, industrial production. People bought what they could trade, like today – Gold and Silver are sky-high and climbing.
Despite the experience of the 20s, Germany repeated its errors again in the 30s. Hitler cranked up the money presses even more. By 1948, the Reichsmark, which replaced the old mark as currency died, so Germany created the Deutsche Mark, which in turn lost two-thirds of its purchasing power by 1975.
So much for the worth of paper money.
I will leave it to you to decide how much relevance Germany’s experience has to the U.S. today. Personally I see alarming parallels and we in the Europe all know that we usually the ripple effects of what’s happening to the economy in the good old US of A…will migrate across and quite frankly I am bloody worried…any comments, people?
With thanks to Chris Mayer, W&G
Kathleen and Chris, this is great food for thought and an inspiration to break through the ceiling of human feelings, language and thinking regarding wealth building and distribution that is creating this perfect storm.
There is much talk about a global currency today. Many great minds in sciences, government, business and wellness are coming together and sharing ideas to shift into a new phase of global understanding, thinking and development of which economics is 1/4th of the question and 1/4th of the solution.
One thought that interests me is the idea of looking at all resources/capital: human, social, intellectual and material. The other point of interest is that we are experiencing something new that while we see the patterns and consequences of the past there is a growing awareness that we must and can create a new economic structure both locally and globally.
Creating opportunities for autonomy first at home and then across the globe seems quite possible and even in the making. Let’s share the vibrant news of this movement, support growth and opportunities to share gifts and create the ripple effect of a global economy of shared wealth and thrivable communities.
Thank you both for sharing your wealth of knowledge regarding the need to act, openness to possibilities and opportunities to share solutions.
Warmest Regards,
Mary Margaret
Sorry Josh,
I’d love to fix my error of thanking Kathleen Casey-Kirshling rather than you.
Warmest,
Mary Margaret
Not a problem Mary. Thanks!
It is scary. So many of us are in this vote. Work all are lives and then this happens.
This is why so many of us are turning to other ways to change our lives financially.
Robert has made mostly good points. Interestingly it contradicts my share market advisor who is making me plenty along with the gold I bought 3 years ago. However I love to study both opposing points of view and check out if the reasoning makes sense. I do this on a regular basis and always advise others to do so to. I have strategies in place for both points of view so I don’t care what happens and can sleep at night.
I will say one thing though as to the inflation in Germany Post WW1. This was created by the Allies and its effects regarding the implementation of the Versailles Treaty. In effect the highly intelligent greedy Allies which were responsible for (not solely) both WW1 and WW2. (WW1 for resources & land grab by the British all over the World) WW2 was guaranteed due to the effects of inflation in Germany as an outcome of the Versallies Treaty. Basically guaranteeing WW2. (BTW anyone wishing to quote the “immoral aspect” of the Germans, no argument from me on that, but they should first take a look at themselves and check out the so called potato famine (Irish Holocaust, (http://www.irishholocaust.org/) or look at the genocide in Israel today in the Gaza strip, just to keep all the guru’s back in their box. Has hollywood ever made movies about these guys????
If Roberts theory is correct and like he said there are many correlations, then as modern history shows us with the US’s dependence on war after war (military industrial complex) through the last 100 years, they will quickly turn into %$#@%! as well. Just watch the developments with China and the US, or should I say the CIA and China or the Rothschild Zionists and China. Make no mistake, it is coming.
Before a bullet is ever shot there first has to be an economic war…How do you turn an Ally in WW1 into an enemy in WW2 (Japan)? Study history honestly and ye shall discover the truth…you be the judge.