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February 28, 2017 | Secular Driver of Deflation: Demographics

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel (www.venablepark.com) Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book "Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts," and a popular daily financial blog: www.jugglingdynamite.com

Those hoping for a magical return to 1980’s-2000 style 4% growth rates in North America, that will justify bubble-high asset valuations, are ignoring a huge part of reality: populations all over the west, China and Japan, who wield the lion share of global spending power, are rapidly aging.  As people move past 50, they increasingly spend less.

Today’s inverted population pyramid cannot be supported on the shoulders of a smaller, younger, less affluent population.  And population-driven-spending-deficits, will continue to be magnified by the fact that most young people are now saddled with auto, education, housing/ consumer loan payments and capital savings shortfalls, that will soak up cash flow for many years.

So far today, governments are still dominated by older generations and their near-term agenda in collecting pension and health care benefits which they themselves failed to fund sufficiently.  In the process, they vote to short-change longer-term investments in critical infrastructure and new technologies that will dramatically improve the health and sustainability of the world for future generations.  But there is no free lunch here.

Think driving home prices to ludicrous levels that can only be purchased with crippling debt was a bright idea? Think again.  The cost of this mis-allocation–in the weight of huge, lasting debt payments, and forgone cash flow for other spending and saving targets–will be holding back economic growth for years to come.  It will also make benefit cuts for the older generations that much more inevitable.  Sucking your support system dry, has never been a sustainable strategy. Elon Musk explains in this clip. Here is a direct video link.

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February 28th, 2017

Posted In: Juggling Dynamite

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