Art Cashin Previews Our $202 Trillion Destiny

Tyler Durden's picture

Yesterday's trading was a balance between Italy fears and fiscal cliff hopes-fears-and-hopes-again. While UBS' Art Cashin notes that on the bright side, this will all be over on December 21st when the Mayans predicted the end of the world, he also details what is perhaps even more fearsome - not-the-end-of-the-world as, in his words, demographics, destiny, and the fiscal cliff loom very large not just for the next few weeks but heading out over the next decade as baby boomers retire. As Cashin so wisely points out: "Somewhat lost in the posturing is the fact that the Fiscal Cliff was put in place to force Washington to address the exploding government debt problem. That problem is greatly exacerbated by the rapidly changing demographics in this country. If you fast forward 20 years until all the boomers are retired government debt (taking into account unfunded liabilities) soars to $202 trillion.  Perhaps worth remembering that "The real problem is that regardless of the resolution it will not solve anything. We have passed the point of no return. We cannot mathematically solve this debt problem. We can only slow its progression."

 

Via Art Cashin of UBS:

Demographics, Destiny And The Fiscal Cliff – Somewhat lost in the posturing is the fact that the Fiscal Cliff was put in place to force Washington to address the exploding government debt problem. That problem is greatly exacerbated by the rapidly changing demographics in this country. Bill Gross, Bill Frezza and others have recently explored this connection and complication. Here's a bit from a tenured veteran of Wall Street, Jim Brown of the Option Investor:

That December 7th attack launched the greatest economic boom of our time once the war was over. That was the baby boom generation. A population explosion in the years after the war increased births by more than four million a year. The "leading edge" boomers (1946-1955) total more than 38 million and the "late boomers" 1956-1964 accounted for another 37 million. Since population demographics have shown the most consumptive years are those between age 40-55 we are heading into a period where consumption (spending) is going to decline sharply as the boomers retire.

 

Bill Gross penned an article this week showing per capita spending drops off a cliff once people turn 65 and retire. Currently boomers control over 80% of personal financial assets, more than half of all consumer spending, account for 80% of leisure travel, 77% of prescription drugs and 61% of over the counter drugs. Starting in 2011 more than 10,000 boomers retire every day and that will continue for the next 19 years. More than 36% claim they have nothing in retirement savings. More than 35% over age 65 rely entirely on Social Security for their sustenance. A recent AARP survey found that 40% plan to work until they die because they did not plan ahead.

 

In 1950 every retiree on social security was supported by 15 active workers. By the end of 2010 there were only 3.3 workers for each retiree. The government believes there will only be two per retiree by 2025. A Wall Street Journal editorial a couple weeks ago highlighted the fact the government is facing not a $16 trillion debt but an $87 trillion debt if you take into account the unfunded liabilities of social security, Medicare and Medicaid. If you fast forward 20 years until all the boomers are retired that soars to $202 trillion according to Boston University.

 

Treasury Secretary Tim Geithner called the fiscal cliff discussions in Washington "orchestrated drama." I call it political theater or basically the same thing. The real problem is that regardless of the resolution it will not solve anything. We have passed the point of no return. We cannot mathematically solve this debt problem. We can only slow its progression. Arguing on whether the 2013 deficit will be $800 million or $1.2 trillion is wasted breath. It is still a deficit. Cutting spending does not mean you only increase the budget over the prior year by $700 billion instead of $900 billion. Until lawmakers can make voters understand the math of ever increasing spending and the disaster that is headed our way, they are just rearranging the deck chairs on the USS Titanic.

Wow! As the Boomers mature, $202 trillion. Hopefully, more on this quandary in coming days.