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How to Prepare For the Coming Global "Write Off" on Social Programs and Government Outlays

Phoenix Capital Research's picture





 

Graham's note: The following is an excerpt from my latest Private Wealth Advisory.

 

The coming years will be marked by a seismic change in the economic landscape in the US. Firstly and most importantly, we are going to see economic growth slow down dramatically. Jeremy Grantham, an asset manager I respect, believes we’ll see global growth at 2% over the next seven years. Personally I believe it could be even lower than that.

 

The reasons for this slow down are myriad but the most important are:

  1.  Age demographics: a growing percentage of the population will be retiring while fewer younger people are entering the workforce.
  2. Excessive debt overhang.
  3. A return to more frugal “common sense” spending patterns in the developed world.
  4.  Political and Geopolitical uncertainty.

 

Regarding #1, Europe is the most glaring situation. According to Eurostat, between 2004 and 2050, the number of people of non-working age relative to those of working age will increase dramatically. In the EU in 2004 there were approximately four people of working age (19-64) for every person of non-working age (65 and older). By 2050, this number will have dropped to only two people of working age for every person of non-working age.

 

Over the same time period, Europe will also see a tripling in people considered to be “elderly” (80 or older) from 18 million to 50 million.

 

These numbers alone go a long ways towards explaining why Europe is facing a budgetary Crisis of epic proportions. All of these retirees will be expecting various Government/ private sector outlays whether they are pensions, healthcare, or various other social services.

 

These issues are, for the most part, left out of most current analysis of Europe’s debt crisis. Indeed, while the vast majority of commentators are well aware of Europe’s official Debt to GDP ratios, when we include unfunded liabilities such as the Government outlays or social programs I detailed above, it is clear that the situation in Europe is far, far worse than is commonly known.

 

Jagadeesh Gokhale of the Cato Institute presents the situation with an interesting data point, “The average EU country would need to have more than four times (434 percent) its current annual gross domestic product (GDP) in the bank today, earning interest at the government’s borrowing rate, in order to fund current policies indefinitely.”

 

The situation is not quite as profound in the US, though we will be seeing a dramatic increase in the age dependency ratio (the number of people of retired age relative to those of working age) between 2010 and 2030 as the Baby Boomers retire: in 2010 there were 22 people aged 65 and older for every 100 people of working age. By 2030, this number will have grown to 37 people aged 65 and older for every 100 people of working age.

 

However, while the ratios are not as poor in the US as in Europe, the unfunded liabilities the US faces are truly astronomical. USAToday puts the number at $61.6 trillion in unfunded obligations, an amount equal to roughly $528,000 per US household.

 

However, Japan makes both the EU and the US look tame.  In 2009, Japan already had 35 people aged 65 or older for every 100 people of working age. However, by 2050, this number will have swelled to an incredible 73 people aged 65 or older out of every 100 people of working age. This among other things sets Japan as a ticking time bomb, which we will assess in another article.

 

The EU, Japan, and the US comprise $36 trillion of the global $64 trillion economy (roughly 57%). So this debt overhang will have a profound impact on global growth particularly in the developed world going forward.

 

This debt overhang will result in several developments from a political perspective. For one thing, the social contract between Governments and retirees will have to be re-negotiated, as the money promised by the former to the latter simply isn’t there.

 

Governments will try to deal with this in one of two ways: by raising taxes on high- income earners/ any other potential avenue for raising revenues and by reneging on the promises made to retirees.

 

The impact these moves will have on the political landscape will be profound. Among other things we will be seeing more protests both at the ballot box and in the streets (Greece’s riots are a taste of what’s to come for much of Europe and eventually the US).

 

To picture how a cutback in social programs will impact the US populace, consider that in 2011, 48% of Americans lived in a household in which at least one member received some kind of Government benefit. Over 45 million Americans currently receive food stamps. And 43% of Americans aged 65-74 are Medicare beneficiaries.

 

Consider the impact that even a 10% reduction in these various programs would have on the US populace.

 

Make no mistake, we are heading into a Crisis that will make 2008 look like a joke. The money for all of these various programs (both in Europe and the US) simply isn’t there. So this time around we’re going to see stock crashes AS WELL as civil unrest, food shortages, and the like.

 

If you’ve yet to take steps to prepare for this, I can show you how: my Surviving a Crisis Four Times Worse Than 2008 report is chock full of information on how to not only survive but thrive during the months to come.

 

Within its nine pages I explain precisely how the Second Round of the Crisis will unfold, where it will hit hardest, and the best means of profiting from it (the very investments my clients used to make triple digit returns in 2008).

 

Best of all, this report is 100% FREE. To pick up your copy today simply go to: http://www.gainspainscapital.com and click on the OUR FREE REPORTS tab.

 

Good Investing!

 

Graham Summers

 

PS. We also feature four other reports ALL devoted to helping you protect yourself, your portfolio, and your loved ones from the Second Round of the Great Crisis. Whether it’s my proprietary Crash Indicator which has caught every crash in the last 25 years, or how to stockpile food (where to get it, what to buy, and how to store it) our reports cover this information in great detail.

 

And ALL of this is available for FREE under the OUR FREE REPORTS tab at: http://www.gainspainscapital.com

 

 

 

 

 


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Mon, 01/30/2012 - 18:02 | Link to Comment hannah
hannah's picture

SOYLENT GREEN IS PEOPLE..........!

Mon, 01/30/2012 - 17:32 | Link to Comment Zero Govt
Zero Govt's picture

"Jeremy Grantham, an asset manager I respect, believes we’ll see global growth at 2% over the next seven years. Personally I believe it could be even lower.."

So what? What can you do with that specualtive figure Graham?

You cannot go to any single company or and single businessman, or his staff, and tell him anything of value with "global GDP will only be 2% this year"

You begin with a nonsense which feeds into the vacuous global economic debate which feeds the purely ficticous and fabricated institution of Govt. Economics is a nonsense, it has no value whatsoever to business or consumers

"According to Eurostat, between 2004 and 2050, the number of people of non-working age relative to those of working age will increase dramatically. In the EU in 2004 there were approximately four people of working age (19-64) for every person of non-working age (65 and older). By 2050, this number will have dropped to only two people of working age for every person of non-working age. Over the same time period, Europe will also see a tripling in people considered to be “elderly” (80 or older) from 18 million to 50 million."

So what?

I was in a Chinese restaurant in Spain and one 'worker' was about 12 and the other 14 years old. Neither child registers in Eurostats political pontificating. Down the market there was an 80 year old Spanish woman selling brick-a-brack (as you'll find in any market across Asia and the Orient). She wasn't in Eurostats idea of a crumbling Nirvana either

So the Govt has introduced a stupid rule (aren't they all?) you should retire at 65 because you're no longer worthwhile or productive and should sit on the sofa for the rest of your life. You take that political nonsense of a fictious fabricated rule foisted onto society and run with it with Eurostats endless political drivel

As Credit Crunch II hits the public sector and banking, debt implodes and credit dries up (welcome to scorched Earth) all the rules will go out the window... older people will re-enter the productive economy to make up for their (Govt) stolen and  pension industry ruined pensions.. younger people will have to pull their finger out their arses and find work because there won't be a Govt to prop them up

You won't become senile, useless and stop working when you hit 65 will you Graham? ..ok you may be there already but why peddle this demographics crap like it effects anyone on the planet except the morons in an office compiling this shit

Mon, 01/30/2012 - 17:17 | Link to Comment Stuck on Zero
Stuck on Zero's picture

Bosh statistics:

 

"In the EU in 2004 there were approximately four people of working age (19-64) for every person of non-working age (65 and older)"

 

Working age?  Why not cite the statistics for "people working" instead of "people of working age?"  With unemployment among the youth at 25% in many EU countries what good does it do to cite these statistics?

 

Mon, 01/30/2012 - 17:12 | Link to Comment rosebud
rosebud's picture

commenting on how good my pho soup was, my friend [who was having chicken soup] said Im sure it is, but have you noticed there are no dogs in the neighborhood ?

Mon, 01/30/2012 - 17:03 | Link to Comment Moe Howard
Moe Howard's picture

My current newspaper had an article that the FedGov is tightening the requirements for school meals. By 2014, students MUST take a 1/2 cup of fruit or veggies. 

 

My question: who is going to make them eat it? It's a battle that has been lost by generations of parents.

 

Obviously, FedGov doesn't think things are going to get tighter - they want to feed more people food they don't want.

Mon, 01/30/2012 - 16:52 | Link to Comment mind_imminst
mind_imminst's picture

The governments will reneg on social contracts, they will raise taxes when possible, AND they will also PRINT, PRINT, PRINT $$$$$

Mon, 01/30/2012 - 17:03 | Link to Comment anomalous
anomalous's picture

Ok just read:


"How to Prepare For the Coming Global "Write Off" on Social Programs and Government Outlays"

But didn't see any "how to" other than the "visit my website and I'll tell you how" at the end of the piece. Was I just punked for two minutes of my precious time?

Mon, 01/30/2012 - 16:41 | Link to Comment NEOSERF
NEOSERF's picture

Could be wrong but the timeline for Graham's apocalyse seems to be moving out...I can't wait til 2050...40 years of garbage strikes and flash-riots will be tiring...

Mon, 01/30/2012 - 16:40 | Link to Comment terryfuckwit
terryfuckwit's picture

Finance and economics as an acedemic pursuit is right up their with astrology and the study of supernatural entities. IT is piss poor science based on misinterpreted mathemtical models. Till this changeas nothing changes.. The open source community need to teach them transparency standatrds , civils and mechanical engineers can teach them how to get 99.9% of their product right as opposed to 99.9% wrong. Yes us civils guys can build wobbly bridges very rarely... but financial engineers build specifically and deliberately for maximum dnager and guaranteed failure every time...

Do we believe any politician understands this... we do ron ron... we do ron ron

 

Tue, 01/31/2012 - 03:55 | Link to Comment New World Chaos
New World Chaos's picture

The Illuminati pay them very well to get it 99.9% wrong.  Never assume mere incompetence when evil would suffice.  See also 9/11, the Iraq war, the media, education, the Fed, fraudclosure, MF Global, the bailouts, etc.  All part of the same vast conspiracy to destroy America.  Even the sheeple are not merely incompetent.  They don't want to think too hard about who gets crushed to pay for their easy lifestyle.

Mon, 01/30/2012 - 16:36 | Link to Comment daxtonbrown
daxtonbrown's picture

Graham gets a bad rap here for gloom and doom but he is probably right about te consequences of the collapse of the welfare state. "So this time around we’re going to see stock crashes AS WELL as civil unrest, food shortages, and the like."

How this sorts out is anyone's guess since we have found the Fed and politicians seem able to play kick the can for far long periods than anyone expected. However, the system is now based on the debt slavery of our children and is unsustainable as well as morally banktupt. The last time we had slavery it ended in civil war, there is reason to believe that we will repeat that history as our children figure out the size of the bill they've been handed. http://www.futurnamics.com/civilwar.php

Mon, 01/30/2012 - 16:35 | Link to Comment MrBinkeyWhat
MrBinkeyWhat's picture

HOLY CRAP BATMAN!  We are so fukked!  I was away doing a friend's tax return, and all the headlines on ZH are reinforced my findings.

Context: Age 28; single mother; ex-military trained as a mechanic; currently working (!) as a waitress; made $17K last year; gets $4.5k "refund" on taxes (about three months work).

/No sarc

Mon, 01/30/2012 - 16:00 | Link to Comment Joe Davola
Joe Davola's picture

It would be nice if all the stats for retirees/workers were presented for the same time frames and in the same manner (EU - workers/retiree, US,JP retirees/workers), sure I can do the math and draw straight lines too, but it is annoying.

Mon, 01/30/2012 - 15:59 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Now we know Graham is a shill.  He does not even mention the end of inexpensive ENERGY and over population as one of top reasons for the slow down.  Common sense should tell you that if you have room for a certain number of people at a certain standard of living, adding more people means that everyone's standard of living goes down a bit OR more people starve.  Hey Grim Graham, exponential equations are indeed a bitch.

Mon, 01/30/2012 - 17:06 | Link to Comment smb12321
smb12321's picture

Historically, nations with declining populations decline; those with growing populations thrive.  Our economy is predicated on debt - older folks borrow from future generations who borrow from their children.  Europe has reached the logical end of this ponzi scheme - there are no more children to steal from.  Further, Europeans are leaving the continent in droves. The old Malthusian arguments of population have been disproved repeatedly.

I agree on energy (as well as a host of technological advances) that will affect us in unexpected ways - most likely the loss of jobs to machines.

 

Mon, 01/30/2012 - 16:11 | Link to Comment NotApplicable
NotApplicable's picture

Entropy rules!

Mon, 01/30/2012 - 16:26 | Link to Comment John_Coltrane
John_Coltrane's picture

Indeed the second law of thermodynamics overrides any supreme court ruling, executive order, or congressional mandate.  Even black holes have to follow it, so the black hole that is the federal government will also have to obey.

Mon, 01/30/2012 - 15:57 | Link to Comment Dermasolarapate...
Dermasolarapaterraphatrima's picture

This time is different, however.

Mon, 01/30/2012 - 15:49 | Link to Comment max2205
max2205's picture

................

    oooo

       y

Mon, 01/30/2012 - 15:57 | Link to Comment Clueless Economist
Clueless Economist's picture

If you’ve yet to take steps to prepare for this, I can show you how: my Surviving a Crisis Four Times Worse Than 2008 report is chock full of information on how to not only survive but thrive during the months to come.

 

Within its nine pages I explain precisely how the Second Round of the Crisis will unfold, where it will hit hardest, and the best means of profiting from it (the very investments my clients used to make triple digit returns in 2008).

 

Best of all, this report is 100% FREE. To pick up your copy today simply go to: http://www.gainspainscapital.com and click on the OUR FREE REPORTS tab.

 

Good Investing!

 

Graham Summers

Mon, 01/30/2012 - 15:44 | Link to Comment NERVEAGENTVX
NERVEAGENTVX's picture

"Believes we will see global growth of 2% over the next 7 years".
By whose GDP calculator? The B(L)S'? (LOL)

Mon, 01/30/2012 - 17:04 | Link to Comment akak
akak's picture

Factor in the REAL rate of inflation, and the REAL rate of GDP growth is already negative, and has been for several years at least.  Stop insulting us, Graham, by implying that the bogus BLS statistics have any relevance to reality.

Mon, 01/30/2012 - 15:44 | Link to Comment digitlman
digitlman's picture

More shit from Graham.

Mon, 01/30/2012 - 15:38 | Link to Comment LeonardoFibonacci
LeonardoFibonacci's picture

Guns & ammo should also be in one's stockpile

Mon, 01/30/2012 - 16:18 | Link to Comment Chicken_Little
Chicken_Little's picture

I have seen so many people do this, "{Silver Bitcez)

 

 

Mon, 01/30/2012 - 15:52 | Link to Comment Badabing
Badabing's picture

Grim Graham

Do NOT follow this link or you will be banned from the site!