Tag Archives: baby boomers

The pension nightmare that is at the heart of the horrific financial crisis in Detroit is just the tip of the iceberg of the coming retirement crisis that will shake America to the core. As a society, we have made trillions of dollars of financial promises to the Baby Boomers, and there is no way that we are going to be able to keep those promises. The money simply is not there.

Based on the strong historical relationship between the age distribution of the U.S. population and stock market performance that has prevailed since the mid-1950s the upcoming waves of retirement of the baby boom generation born between 1946 and 1964 could push down U.S. equity markets. Why? Because, as boomers reach retirement age, they are likely to shift from buying stocks to selling them to finance retirement, and this massive sell-off could depress equity values. There appears to have been a breakup in that relationship of late, however, so what does that suggest for the timing and magnitude of any correction in the near future?

As Baby Boomers exit the workforce and increasingly move into retirement, this monumental demographic shift will exert enormous pressure on interest rates, bond prices, and equity market valuations. It’s going to be a huge wakeup call.

As the narrative goes, either we buy into the unlimited and more or less guaranteed creation of wealth for all who follow the agreed-upon wisdom, or we reject it, and prepare for the inevitable collapse of the financial system and the value of money. The problem, however, is that both the present and the recent past are completely different from either approach BUT there is a third potential future to consider which I believe to be the most compelling. Let me explain.

We've now entered a pivotal phase in which, with each passing day, more and more of the country's 50 million Baby Boomers are reaching retirement age. Over the last 35 years, we’ve seen what the largest and wealthiest generation can to do the markets when most of them are simultaneously buying – but we have no history for what happens to prices when so many people try to cash out so much for so long.

Anyone that thinks that the U.S. economy can keep going along like this is absolutely crazy. We are in the terminal phase of an unprecedented debt spiral which has allowed us to live far, far beyond our means for the last several decades. Unfortunately, all debt spirals eventually end, and they usually do so in a very disorderly manner.

Oh the shame of being a baby boomer. What a bunch of shysters we seem to be. We are the most selfish, greedy, job- hogging, pension-grabbing bunch of egomaniacs history has ever seen. Here we are, cackling to ourselves in our overpriced homes and exploiting our political power to shaft the younger generation. We use our demographic throw-weight to skew the welfare system in our favour and above all we are squandering the natural resources of the planet. You know that Goya picture of the giant eating a naked human being? That's us, all right – Saturn devouring his children. Or at least, that is the portrait presented by David Willetts in his new book, "The Pinch-How Baby-Boomers Took Their Children's Future and Why They Should Give it Back". Words: 759