The Coming Global Generational Adjustment

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

All sorts of promises, explicit and implicit, were issued to win votes. All the promises are now empty, and we might as deal with this reality head-on.

Here's what often happens when people start discussing Baby Boomers, Gen-X and Gen-Y online: rash generalizations are freely flung, everyone gets offended and nothing remotely productive results from the generational melee.

These sorts of angry, accusatory generalizations reflect what I call the Generational Monster Id (GMI), the urge to list faults in generations other than our own.

I think the source of generational angst and anger is the threat that the entitlements promised by the developed-world governments will not be delivered as promised.

These entitlements range from healthcare to education to old-age pensions to "a good paying job now that I have a college degree."

The bottom line is that the promises cannot and will not be kept. The promises were issued in an era of cheap, abundant fossil fuels and favorable demographics: the next generation was considerably larger and more productive (due to more education, longer working lives, etc.) than the previous generation it would support through old age with taxes.

In that bygone era, there were as many as 16 workers for every retiree. Even 4 workers for every retiree is a sustainable level if energy remains cheap and full-time jobs remain plentiful.

But the global reality is the Baby Boom generation is so large that it dwarfs the younger generations. Regardless of any other conditions, this reality negates all the promises issued to retirees: as the ratio of workers paying substantial taxes on their full-time earnings to retirees slips below two workers to one retiree, there is no way the workers can support the lavish costs of healthcare and old age pensions without becoming impoverished themselves.

This is already a reality. As I have noted in this week's series, there are 118 million full-time jobs in the U.S. and 57 million people drawing benefits from Social Security, and a similar number drawing Medicare and Medicaid benefits. As Boomers retire en masse in the decade ahead and full-time employment stagnates or declines, the ratio will slip to 1.5-to-1 or even lower.

Many low-birth-rate European nations are facing worker-retiree ratios of 1-to-1. This is simply not sustainable.

The prospects of the younger generations are much poorer than those enjoyed by their elders.

Adding to the unsustainability of the promises blithely issued to gain political approval, energy is no longer cheap.That means income that 30 years ago was available for taxes or discretionary consumer spending now goes to pay for energy. In effect, higher energy costs are a tax that does not support retirees or the government. The workers paying the energy tax are poorer, but the retiring generation is not wealthier as a result.

The Status Quo has compensated for this higher cost basis by lowering interest rates. The basic idea is that if wage-earners and companies pay less interest, then that leaves more for them to spend on taxes and consumption.

But lowering interest rates and making credit freely available--the basic strategies of central banks around the globe--have triggered structurally destructive consequences. These policies inflated credit bubbles that jacked up the value of assets such as houses, rendering them unaffordable to younger people, and they distorted the mechanics of the real economy, widening wealth and income disparity and creating systemic mal-investments that have led to a destabilizing dependence on zero-interest rates and credit/asset bubbles.

One way to understand this is: you can't fool Mother Nature. You can print enough money and issue enough credit to create the illusion of solvency and sound collateral, but these claims come crashing down once you try to sell the overpriced assets en masse.

The unlimited printing of money and issuance of credit also has global unintended consequences, as these monetary manipulations destabilize the bond and currency markets.

I addressed these basic themes in detail in this week's series:

The Happy Story of Boomers Retiring on Their Generational Wealth Is Wrong
The Fed's Hobson's Choice: End QE and Zero-Interest Rates or Destabilize the Dollar and the Treasury Market
The Generational Short Part 2: Who Will Boomers Sell Their Stocks To?
The Next 20 Years Will Not Be Like the Last 20 Years--Here's Why

There are four Grand Narratives at work: demographics, resource extraction, geopolitical conflict and the changing nature of the economy and paid work. The last two are heavily influenced by the first two; some studies suggest that large cohorts of unmarried, under-employed males are precursors to war, as political leaders channel that restless and potentially disruptive force against external enemies.

Economies based on endless resource extraction founder when the resources are found to be less than endless.

The Grand Narrative of the U.S. economy is a global petro-dollar empire that has substituted financialization for authentic, sustainable economic expansion. In shorthand, those people with access to the Federal Reserve's "free money" credit have taken advantage of the asset bubbles financialization inflates. They have a chance to do very well for themselves, if they have the presence of mind to exit the asset bubbles in stocks, bonds and real estate before they deflate.

Those people who do not have access to cheap credit and rentier assets become poorer. That is the harsh reality of neofeudal, neocolonial financialization: Neofeudalism and the Neocolonial-Financialization Model (May 24, 2012)

Large cohorts generate their own self-referential feedback loops. A large cohort of home buyers drives up real estate as demand exceeds supply, and those who get in early are handsomely rewarded. Those seeking similar returns provide the fuel for further advances. This is the basic story of housing from 1974 to 2006 and the stock market from 1981-2014, as the Baby Boom cohort bought houses and saved for retirement via stock and bond mutual funds.

As the Boomer cohort sells its homes, bonds and stocks, supply will exceed demand and prices will decline, especially if household capital and access to credit are also declining. This selling cycle will also be self-reinforcing.

Central banks have masked this generational selling by becoming buyers of last resort. The Fed has purchased trillions of dollars of Treasury bonds and home mortgages, to push interest rates to zero and prop up a generationally unsustainable housing bubble. But central bank buying of assets to prop up valuations also generates unanticipated blowback: To quote songwriter Jackson Browne: Don't think it won't happen just because it hasn't happened yet.

Mainstream financial pundits were crowing that household assets recently topped $80 trillion in the U.S. Inflate bubbles in real estate, bonds and stocks, and it's not surprising that nominal net worth goes through the roof.

As a back-of-the-envelope calculation, I reckon $40 trillion or half of this sum is phantom, meaning that it will vanish into thin air when these enormous asset bubbles deflate.

These bubbles are all based on one-off conditions that cannot be repeated: the global boom fueled by a now-maturing China, the central banks pushing interest rates to zero and "solving" a credit crisis of phantom collateral by issuing an unprecedented flood of new credit and buying trillions of dollars of assets at bubble valuations, and a surge of new fossil fuels from Africa and North America.

The reality is that promises made two generations ago were made in circumstances that were not as sustainable as those making the promises believed. Extending linear projections in a non-linear world inevitably generates wrong conclusions. Promises made in one set of rosy circumstances are no longer valid in an entirely different and much less rosy set of circumstances. The citizenry will have to adjust to these systemic realities, and demanding we wuz promised is guaranteed to lead directly to failure.

All sorts of promises, explicit and implicit, were issued to win votes. All the promises are now empty, and we might as deal with this reality head-on--if we can muster up the almost-lost ability to deal with reality rather than rely on fantasy/wishful thinking.

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NOTaREALmerican's picture

Get a job you goddamn hippies; and git yer goddamn socalists hand off my medicare,  I'm entitled to that!!

Winston Churchill's picture

Nobody is getting anything much longer.

Thats why the looting is so in your face now.
Enjoy your pipedream of SS and medicare until you try and get it.

SheepDog-One's picture

Yep, they don't even give a shit at this point they all know they game is over soon.

Top Gear's picture

Haters have been raging against the "evils" of SS and medicare, hoping they go under, since they started.

But, like Jesus' Second Coming, the financial apocalypse never happens. LOL

SoberOne's picture

Just let us opt out. I'll forget about my last 20 years of paying into this point scheme.

BandGap's picture

Honestly, I'd swap out what they owe me for a chunck of federal alnd OR exemption from taxes for the rest of my years.

0b1knob's picture

Reality is too abstract a concept for Choomboy to understand.

Moar hope and change!!!!!!!!!

Panafrican Funktron Robot's picture

"some studies suggest that large cohorts of unmarried, under-employed males are precursors to war, as political leaders channel that restless and potentially disruptive force against external enemies."


Thought this was pretty funny.  Give them easy access to porn, junk food, and virtualized war (Call of Duty), and they're about as restless as my fatass 10 year old dog.

Top Gear's picture

Opt out all you want. Libertarian paradise awaits.  In fact, I'll pay for your ticket, one way, if you promise never to come back.

• Stateless in Somalia, and Loving It | Mises Daily (2006)
• The Anarchy Advantage in Somalia | Reason (2006)

Remember, the "love it or leave it" argument is of libertarian origin.  If somebody asks a libertarian about an abusive workplace, the libertarian says that a person can either love their boss, or leave that work. "Nobody is holding a gun to your head to stay with your employer!"

Same libertarian logic: "Nobody is holding a gun to your head to stay in America!"


SoberOne's picture

Fuck you. You are completely ignoring our foundation of liberty. Fuck you.

Top Gear's picture

I'm a United Statist citizen. A most precious one at that.

• "The small landholders are the most precious part of a state." ~Thomas Jefferson, to James Madison, 1785

I bet you're one of those fucking morons who think Jefferson was sort of an "anarchist."

Not in the least.

• "Our falling into anarchy would decide forever the destinies of mankind, and seal the political heresy that man is incapable of self-government." ~Thomas Jefferson, to John Hollins, 1811

• "The voluntary support of laws, formed by persons of their own choice, distinguishes peculiarly the minds capable of self-government. The contrary spirit is anarchy, which of necessity produces despotism." ~Thomas Jefferson to Philadelphia Citizens, 1809

• "...repairs to the standard of the laws. Do this, and you need never fear anarchy or tyranny. Your government will be? perpetual." ~Thomas Jefferson, Manuscript, c. 1801

Citxmech's picture

"I'm a United Statist citizen. A most precious one at that."

Apparently, you also think you're one of those animals that is "more equal" than the others.

SoberOne's picture

If we used sound money and not fractional reserve debt banking, it might work. You are delusional and an asshole.

Top Gear's picture

Got a problem with the Treasury Department being privatized in 1913?

I thought libertarians liked privatization.

gcjohns1971's picture

FIrstly, the TREASURY wasn't privatized.  It was the department of weights and measures along with a poriton of the bureau of engraving that changed in 1913.

Secondly, it wasn't privatized.  It was MONOPOLIZED by a CARTEL.  These are terms you should look up to ensure we have a common understanding, as both monopoly and cartel require a government enforcer.

So, this would be a privitization of monetary authority:  "In the United States henceforth $1 shall be defined as 1/20th troy oz of .999 refined PURE GOLD, regardless of form, printing, or engraving."

Then you'd have many competing organizations trying to provide those dollars in a way that ensured the purity, authenticability, and other qualities.  Some of the m might be digital currencies that did nothing more than maintain an independently audited vault, with transaction system like BitCoin's blockchain.

People could choose for themselves what to use.  You wouldn't even have to use Gold.  Some peole might decide to use platinum or silver, and convert only when needed.

Top Gear's picture

<< ...MONOPOLIZED by a CARTEL.  These are terms you should look up... >>

Great advice! I will look'em up.

"Likewise, a monopoly should be distinguished from a cartel..." ~/wiki/Monopoly

Capital letters won't dig you out of your misunderstanding of economics.


LibertyBear's picture

I, as a Libertarian, like free-market competition better.

gcjohns1971's picture

Anarchy is not the lack of voluntarily accepted governance, but the abscence of mandatory gun-in-your-face statism.

With that in mind your quotes would seem to indicate Jefferson's position to be the OPPOSITE of what you claim.

The Most Interesting Frog in the World's picture

You are a stupid fucking moron and a waste of vital organs.  You think your brain is the size of your mouth, but in reality it's the size of your dick.  

Top Gear's picture

What is your final solution to people you deem "a waste of vital organs?"


The Most Interesting Frog in the World's picture

Thanks for asking.  The best thing you can do for your country is make sure you are an organ donor, walk in to a hospital and blow your brains out.  Your brain is obviously useless but if the rest of your organs are not too damaged from alcohol, they can be saved and used by someone else.  Feel free to get started on this plan ASAP!

Top Gear's picture

No wonder the marketplace of ideas keeps rejecting you.

Libertarian presidential candidate election performance: 1972—0.01% 1976—0.21%? 1980—0.06% 1984—0.25% 1988?—0.47% 1992—0.28% 1996—0.50% 2000—0.36% 2004—0.32% 2008—0.50% 2012—0.99%

The marketplace of ideas chooses the "status quo" year after year, simply because your alternative is so malevolent and sociopathic as to make the "status quo" shine by comparision.

Grande Tetons's picture

No wonder the marketplace of ideas keeps rejecting you.

The world is flat until it is not. 

You can learn a lot from a marble. 

The Most Interesting Frog in the World's picture

I have never met anyone so utterly stupid and naive in my entire life.  No one, absolutely no one, I have ever met that has worked themselves up from the bottom to a successful perch talks the way you do.

You are not a "winner".  You were born with a silver spoon in your mouth, a spoiled child who went to over-priced schools because your parents could afford it.

And this is what comes of it?  You are a COMPLETE LOSER!  A complete waste of a human being who could have used his unearned position in life to better himself and mankind.  But no, you had (and still have) nothing better to do than read useless statistics and vegitate in front of a TV where they read government propoganda to you.

Moron, the "status quo" picks the "status quo"!   The fucking "marketplace" doesn't select it.  Do you fucking think that establishment would risk their position in the "marketplace"?  LOL, if you are not going to turn your life around right now, PLEASE, take my suggestion!

Top Gear's picture

<< "You were born with a silver spoon in your mouth..." >>

So was Francisco d'Anconia. Are you envious?



Citxmech's picture

Market place? - in US elections?

At best we've got a company store with one flavor packaged in two different color boxes.  

Enjoy your illusion of chioce.  The empty calories sure taste great along with the giant dick up your ass.

CH1's picture

Opt out all you want.

LOL... Would have done that a LONG time ago... but the system is kept in place BY FORCE!

I don't really care about your stupid opinions, what I care about is that you impose them upon me BY FORCE.

Government is a violent gang. All else is confusion.

Top Gear's picture

Like any employer, the US does have the right to use force within the territory it controls.  Yet nobody is keeping you in the US by force.

So if you can leave, then you are here voluntarily.

(Libertarians say that every day about employment. It works just as well for residence.)

gcjohns1971's picture

"The US" is an imaginary entity that masks the less than 10 million faces that control it.

This is the problem with assigning prerogatives and privileges to your imaginary friend, when you take away all the puppeteer's hands there is nothing there but an empty shell.

Top Gear's picture

Weird how libertarians have such problems with hierarchy, such as a corporation being congtrolled by only a few people. They sound just like Marxists.

"This is no surprise, as libertarianism is basically the Marxism of the Right...Like Marxism, libertarianism offers the fraudulent intellectual security of a complete a priori account of the political good without the effort of empirical investigation. Like Marxism, it aspires, overtly or covertly, to reduce social life to economics." ~Robert Locke, Marxism of the Right, The American Conservative, March 14, 2005

Citxmech's picture

Weird how Libertarians have problems with corporations?  Seriously?  What's weird is how you don't.

The Libertarians I know have problems with the corporate form because it was designed to be a vehicle for temporary liability mitigation facilitating the financing of public works projects, like the building of bridges, that were too costly for other means of financing.  Regardless about how you feel about that mission, the corporate form has since been corrupted into a den of pathology where serial fraud and criminality against the people is protected if not encouraged under the guise of a fiduciary duty to shareholders.

What's not to love, eh? 

Dick Gazinia's picture

Member for one week and four days.  Fuck off schill.

Top Gear's picture

Weird how libertarians hate people, simply because they're being paid to do things better than libertarians can do.  Isn't your writing up to being valuable to the market, Gazinia?


(P.S. I'm not a paid "schill," but it's just funny that libertarians get their panties in a wad over money whenever free market transactions don't suit them.)

Citxmech's picture

Weren't you just talking shit about the "love it or leave it" meme?  

BTW - the government's authority to use force on We The People is supposed to be checked by the Constitution.  When the government overreaches its authority, the citizenry's only option is not to abandon ship.


Top Gear's picture

You're correct, our social contract, the Constitution, puts limits on force. But it also authorizes force.

Force is like fire. Some is good. It runs engines. Too much is bad. Society finds a balance.

Libertarians aren't into balance, they just keep whining that force is completely bad.

Citxmech's picture

Society doesn't passively "find" anything when those entrusted with the authority to use police power put their fingers on the scale ensuring greater and greater control.  

gcjohns1971's picture

"Nobody is holding a gun to your head to stay in America!"

Perhaps you would like to review the IRS' foreign earnings tax law, and the State Department's procedures for revoking citizenship and then rephrase?

Top Gear's picture

I suppose you're one of those thievin' Marxist/Anarchists who thinks they can just walk out the door of a corporation with business property, because you helped produce it.

Sorry, your voluntarily staying within what a government/corporation controls gives your implied consent to the rules governing therein. Pay up and don't steal, and nobody has a problem. The US isn't Cuba or North Korea.

Enceladus's picture

Sound exactly like the crap the British were saying in 1775. Pay up and shut up

Enceladus's picture

One week 4 days...


!!Ad homium attack!!


I think I smell Linda Green. Linda you have a new job?

Winston Churchill's picture

And you would have to be the three brass monkeys to not recognize this time its true.

I don't want my comfortable life turned upside down either.

The US is broke,bankrupt,skint, and the hyena's are circling.

The Most Interesting Frog in the World's picture

SS and Medicare went under a long time ago you fucking moron.  Bernie Madoff did way better for his investors than the dumbfucks running SS and Mcare are doing for the mules that have to fund these dumbass programs.

Top Gear's picture

<< SS and Medicare went under a long time ago... >>

Strangely, here in reality-based land, my granddad just cashed his SS check, and Medicare paid his hospital bill.

Who's the "fucking moron?" LOL!

The Most Interesting Frog in the World's picture

Your dad and mom are probably as stupid and ugly as you, so none of this is surprising.  70% of the current deficit is printed money dumbass - that means the money ran out moron.

Oldwood's picture

I'm the fucking moron. I'm 61 with no hopes of retirement. I have paid in about $250k in SS and cannot afford to retire on the offered benefits. So, I'm the fucking idiot paying for your grandparents benefits. I will likely die while at work and not cost the entitlement system a dime.

The Most Interesting Frog in the World's picture

Sorry to hear that.  Your employer paid in the same amount you did, so the total paid in is actually $500,000.  We rail on the brokers and bankers so much, but my guess is you would have done better with a savings account that averaged 3%.  The Communists that fill our halls of government truely are satan's children.

Ghostbusters's picture

It would almost be entertaining to witness the mass denial of basic maths in the justification of the well-overblown yet 'exceptional' 'democracy' in the west, if it were not so supernaturally lethal and totalitarian.  Endless wars, endless exploitation, and endless money are endless until they ain't.

Alas, there is a reason why the moneyed interests have taken near complete control of information and promoted the commune while documenting it all in the written works of their masters....