Bill Gross Warns Of Demographic Doomsday
"It’s a wonderful life for the 1% and a Xanax existence for the 99," Bill Gross says, bemoaning the pacification of the masses that the (former) bond king likens to "a day at the Coliseum" for Plebian citizens and "cake" for the French Bourgeoisie.
But while the myriad creature comforts available to a society that's more interested in "Fantasy Sports, cellphone game apps, sexting, and fast food" than it is with the fact that "half of the U.S. population doesn’t go to work in the morning [or] that real wages after conservatively calculated inflation have barely budged since the mid 1980’s," may serve to keep the populace in a state of perpetual stupor thus forestalling an inevitable revolt by both the proletariat and the elite, demographic realities are set to make the "next few decades" difficult - even for an American electorate drunk on Xanax.
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"It's A Xanax World," by Bill Gross
The Romans gave their Plebian citizens a day at the Coliseum, and the French royalty gave the Bourgeoisie a piece of figurative “cake”, so it may be true to form that in the still prosperous developed economies of 2016, we provide Fantasy Sports, cellphone game apps, sexting, and fast food to appease the masses. Keep them occupied and distracted at all costs before they recognize that half of the U.S. population doesn’t go to work in the morning and that their real wages after conservatively calculated inflation have barely budged since the mid 1980’s. Confuse them with demagogic and religious oriented political candidates to believe that tomorrow will be a better day and hope that Ferguson, Missouri and its lookalikes will fade to the second page or whatever it’s called these days in new-age media.
Meanwhile, manipulate prices of interest rates and stocks to benefit corporations and the wealthy while they feast on exorbitantly priced gluten-free pasta and range-free chicken at Whole Foods, or if even more fortunate, pursue high rise New York condos and private jets at Teterboro. It’s a wonderful life for the 1% and a Xanax existence for the 99. But who’s looking – or counting – even at the ballot box. November 2016 will not change a thing – 8 years of Hillary or 8 years of a non-Hillary. Same difference. Central bankers, Superpacs, and K street lobbyists are in control. Instead of cake, the 49.5% (males) will just have to chomp on their Carl’s Jr. hamburger and dream of a night with 23-year-old Kate Upton lookalikes that show them how to eat it during Super Bowl commercials. And if that’s too sexist, then Carl’s is substituting six-pack hunks instead of full-breasted models to appease the other 49.5% (females). It’s a Xanax society. We love it.
But I kid my readers – (that’s what comedians say on TV when they approach an edge). Kidding aside, however, if the 99 think they’ve got it good (bad) now, just wait 10 or 20 more years until their bills really come due. Of course by then, the 1% likely won’t be doing so well either, but there’s the hope that each and every one of them (us/me) can sell before the deluge. I speak specifically though to liabilities associated with the Boomer generation: healthcare, private pensions, Social Security and the unestimable costs of global warming, but let me leave the warming of the planet out of it for now. Let me try to convince you with some hard, cold facts, many of which are U.S. oriented but which apply as well to much of the developed world, because we’re mostly all getting older together. Demography rules.
Explaining this demographic countdown requires an impolitic concession that the world’s population is gradually aging, some at a faster rate than others (Japan, Italy, Taiwan!) but mostly in developed vs. undeveloped countries. And it is the elderly that require more services and expenses than newborns, although at first blush it would seem that an infant in diapers requires more attention and healthcare than a 70-year-old retiree. Not really. To focus on some U.S. centric mathematical realities, several years ago Mary Meeker in a 500 page, softbound edition entitled “USA Inc.” put together a series of U.S. Treasury and other government reports that outlined just how dire America’s future demographic is in terms of financial liabilities. It is one thing to put readers to sleep with a 2030 forecast for aging boomers, as shown in Chart 1 but another to use the government’s own present value of these debts as of 2016. If financial market observers seem aghast at current Greek or Puerto Rican debt traps, they would surely take a double dose of Xanax when confronted with this: Fact – The U.S. government has current outstanding debt of approximately $16 Trillion or close to 100% GDP. The present value, however of Medicaid ($35 trillion), Medicare ($23 trillion), and Social Security ($8 trillion) promised under existing program totals $66 trillion or another 400% of GDP. We are broke and don’t even know it, or to return to my opening analogy, we are having our cake, eating it at the same time and believing that a new cellphone app will be invented in the near future to magically deliver more of the same. Not gonna happen folks.
Some politicians like Paul Ryan who argue for balanced fiscal budgets are intelligent sounding but relatively clueless. “Austerity – if not now, then when?”, he would argue in Reaganesque twitter. “Let’s slow down or even stop the inexorable clicking of the debt clock: 16 trillion, 17 trillion, 18 trillion”…he would add. Well yes, every little bit helps, Mr. Ryan, but the fact of the matter is (a great political phrase, is it not?) that reducing the growth rate of current government debt does little to help what in essence is a demographic not a financial problem: too few Millennials to take care of too many Boomers. Social Security “lock boxes” or Medicare/Medicaid “trust funds” which in essence represent “pre-funded” liability systems, cannot correct this demographic imbalance, because financial assets represent a “call” on future production. If that production could possibly be saved like squirrels ferreting away nuts for a long winter, then Treasury bonds or purchasing corporate stocks might make some sense. But they can’t. Future healthcare for Boomer seniors can only be provided by today’s Millennials and even doctors yet to be born. We cannot store their energy today for some future rainy day. Nor can we save food, transportation or entertainment for anything more than a few years forward. Each of those must be provided by a future generation of workers for the use of retired Boomers. And as Chart 1 points out, the ratio of retirees to workers – the dependency ratio – soars from 25 retirees for every worker to 35 over the next 10 years or so.
There’s your problem, and neither privatization nor any goodly number of government bonds deposited in the Social Security “lock box” can solve it. While these paper assets may “pay” for goods and services, their value will be market adjusted in future years to exactly match the quantity of things we buy, and that quantity will be substantially a function of the available workforce and the price they command for their services. This is another way of saying that the value of Treasury bonds and even private pension held stocks will be marked down in price as they are sold to pay for future goods and services, and that the price of these goods and services will be marked up (inflation) to justify their reduced demographic supply. Productivity gains are often advanced as a solution but productivity gains have been shrinking in recent years, and even so, employed workers cannot be expected to hand over future advances to retirees without a fight. Having more babies would also turn the trick, but at the moment, making fewer seems to be the going trend.
Investment implications? Well it is true that if much of the developing world is younger demographically (think India), then developed nations could and should transfer an increasing percentage of their financial assets to emerging markets to help foot the demographic bills back home. Long-term then, as opposed to currently, think about increasing your asset allocation to the developing world. It’s also commonsensical that if higher Millennial wages are the probable result of a shortage of healthcare workers relative to Boomer requirements, then an investor should go long inflation and short fixed coupons. U.S. 10-year TIPS at 80 basis points seem like a good hedge in that regard. And of course in terms of specific equity sectors, healthcare should thrive, while liability handcuffed financial corporations such as insurance companies as well as the bonds of underfunded cities and states such as Chicago and Illinois, should not. Other countries have similar burdens. The Financial Times reports that the UK pension industry faces a 20-year wait until they might have enough cash to meet their liabilities in 2036. Until then, they cannot. In general, it seems demographically commonsensical that Boomers have in part been responsible for asset appreciation during the heyday of their productive years and that now, drip by drip, year by year, they will need to sell those assets to someone or some country in order to pay their own bills. Asset returns will therefore be lower than historical norms, especially because interest rates are close to 0% in developed countries.
Demographics may not rule absolutely, but they likely will dominate investment markets and returns for the next few decades until the Boomer phenomena fades away. The 1% – in addition to the 99 – will need extra doses of Xanax, or additional slices of cake, to cope in the next few decades. Let the games begin.
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As soon as they can figure out how to co-opt the blockchain, they will bamboozle the masses into thinking that digital is the solution, and flawed money was the problem the whole time. There are already enough true believers to get a hallelujah chorus going, and Silicon Valley will fall in line. That is when they will attempt to perform a reset that once again favors the owners. The current crop of college kids are crotch deep already, so they only need to spin these cracked plates a bit longer.
It's also commonsensical that the divide between the 99 and 1 %'ers will will shrink considerably when the dollar crashes.
The dollar is what powers the dark side.
bonds are debt, yet if debt was real, all mega banks and CBanks would be BK, they are not, ergo: debt is illusion.
what falls from that is collection of a real thing : work to payoff debts is a crime.
ergo all debt is a crime in todays markets.
then all heads of finance are criminals- and by gosh they act like it , right mr corzine??
"And as Chart 1 points out, the ratio of retirees to workers – the dependency ratio – soars from 25 retirees for every worker to 35 over the next 10 years or so. There's your problem,...."
Precisely why Merkle et al are welcoming the great unwashed from the ME. Let's see how all that turns out. Good luck to them with that.
How about 2 more important charts.
1. The ratio of government employee retirees on pension vs. the private sector employees that are taxed to pay for them.
2. The ratio of current government employees "at work" (and counted dollar-for-dollar as part of the GDP) ie, their 50% output is counted as 100% vs. the private sector employee who is taxed to support them.
Yes, after they spend two years teaching them German, another two years teaching them how to work in a Mercedes plant, that still leaves 90% with not much to do but beg and steal.
I'd venture to say that the size of the hole doesn't even matter at this point- it is unserviceable at present! I say, full steam ahead! It would be nice if we could at least get some decent infrastructure put in place with all this debt before the party ends, but at the moment it looks like we'll mostly be left with a bunch of craters in the Middle East and the legacy of whatever madness arises next there after the dust settles
Obamacare and Old Fart Dependency after 2020 for the win in collapsing this thing.
Depends on how it's calculated, Kotlikoff (who ever that is) doesn't say whether this is PV of future liabilities whereas that's the figure Gross is using.
In the end does it matter? Give or take a few trillion makes no difference, it won't be repaid and we just keep spending more.
Watched this old movie again the other day. Very interesting when viewed as a prediction.
https://www.youtube.com/watch?v=o7Yrw7QNx1U
The future is now.
I'm investing in this company...
http://ih1.redbubble.net/image.72261448.0654/raf,750x1000,075,t,silver.jpg
Lopsided demographics are temporary.
Let's not cement in any more permanent fuck-ups in an effort to "fix" the problem.
That said (note to President Trump)
Since A) healthcare is the one industry with essentially limitless demand and B) The US labor force participation rate sucks and the quality of too many post-2008 American jobs suck how about we try and connect those two points and incentivize private enterprise, educational institutions etc. to train up a new generation of workers for this industry...from doctors to healthcare tech workers to medical infrastructure?
Already been going since NIH has been DOUBLING their research budget every year for 20+ years!!!
Here's the issue. Advances have in fact been made based upon some great BASIC research. Unfortunately, NIH no longer funds BASIC research. NSF does and their budget now goes almost entirely to "educating minorities"...
BASIC research has been fucked for quite some time in the U.S. Russia, Brazil, China have been investing heavily in basic research.
As a farmer I just laugh. You can have all the medications and preparations you want, if you don't have healthy food or clean water, you are just as DEAD.
It's not just about research it's about putting an underutilized labor force to work on something that's actually productive.
Sure, now define "productive"...
The only problem I see with mankind these days is that the "laws" reward BAD behavior. This is counter to how EVOLUTION works...
At the end of the day, the laws of physics and Nature will re-assert themselves, they always do.
Hedge accordingly.
The only route the preserves liberty by doing away with the health care industry is genetic and nanotech engineering that does away with medical problems as rapidly and effectively as a trip with a car to an auto mechanic. We need to be rid of this industry. It's too corrupt and too big.
I would take a different approach and focus more on prevention... selling cures is great, but it will undoubtedly create an even more bifurcated society, as not everyone will have access. However, most folks can go jog, do some sit-ups, and stay away from unhealthy choices. Further, given the broad range of preventative possibilities, the markets are much more likely to have competition and drive prices down to an affordable level.
If you really want to cure the medical industry, then pull insurance out of the equation, pull medicaid and medicare, and have people pay out of pocket for their services. After the resulting crash, a more honest system will be built. The hospitals will still be there... the doctors will still have their tools and expertise... but the pricing structures and power balance in the equation will be a bit more honest.
Sure, that's all part of the bigger picture. So is elder care and all that...
Like I said, unlimited demand.
The principal of "survival of the fittest" means those who are best fit to survive a given set of selection pressures survive/thrive which is not necessarily the same thing as rewarding the smartest, strongest or fastest.
In a nutshell I would like to see incentives (selection pressures) adjusted to achieve a set of desired outcomes which, I believe are in everyone's best interests and would kill several birds with one stone.
It's not just about research it's about putting an underutilized labor force to work on something that's actually productive.
You realize that we have structural unemployment, right?
If you want to "utilize" folks in something productive, then you'll actually have to find an organic, bona fide need for production in a particular area... As I see it, there really isn't a need on a large/industrial scale, as production has already been automated/optimized. However, if localization ever takes hold (probably forced by supply chain disruption or prohibitively expensive transportation costs), then there might be a need... but it sure as hell isn't going to be in medicine... maybe artisan type tasks, small batch breweries, soap, gardens, hand made products... possibly performing mundane maintenance/service tasks for the more productive, e.g. rat killing, coffee fetching, etc.
PS, most medical services are not "productive" in the classical sense of the word... however, LoP's crops sure are productive. Of course, it won't be too long that farmers no longer sit in the combine.
Again, there is effectively unlimited demand for healthcare whereas there isn't for everything you mention above.
The Obamacare "solution" isn't about boosting supply it's about limiting demand (aka rationing).
Mercury
And who pays for this? The real problem is killing off the private sector middle class. No income to tax, and can't have babies.
The solution today? Bring in illegals and Muslims to do the breeding ? And how is that paid for ? Not by the immigrants.
ps. If I missed the sarc. then I will grab another coffee.
That's what incentives are for. It's more about waking up, smelling the coffee and reprioritizing, less about massive government programs.
Right now government incentives are focused on forcing the reduction of the emission of a gas that makes green things more green and is critical to photosynthesis, security theatre and a whole bunch of bullshit compliance enforcement. Probably not the best use of resources.
Private enterprise can be incentivized through tax breaks of one kind or another and public schools and all universities can be incentivized to develop training and education programs in these areas...also with money or the lack of.
"private enterprise" that is incentivized through PUBLIC funding is no longer PRIVATE!!!!!!!!!!!!!!!!!!!!!!!!!!
How about this. Let companies, business models, and MANAGEMENT that cannot maintain a positive balance sheet with mark to MARKET GAAP rules FUCKING DIE!!!!
For some reason people refuse to accept that our predecessors already found the answer...
It doesn't have to be public funding per se it can be built into the tax code.
You want less of something, you tax it, you want more of something, you lighten up. Surely this is not news to you.
Modern medical miracles have increased this demographic issue and continue to do so. When social security was invented few were expected to live past 65. Lotsa jobs in this sector for sure. I like your President Trump; seems like a guy willing to face issues head on. Too many of our presidents have willingly worn blinders while running out the clock for those juicy speaking fees.
Smoking, fast food, sitting watching TV.
All they have to do is increase the retirement age a little and huge numbers will die before ever collecting anything. The pension is the ultimate scam.
Healthcare is going to be the only growth sector. Hey maybe we'll figure out how to live for ever.
Fat, drunk, and stupid is no way to go through life, son!
"Healthcare is going to be the only growth sector."
Nope, defense will.
Live and work forever in perpetual war?
That ain't living, that's dying slowly.
"All they have to do is increase the retirement age a little"
Already doing that in Canada. Soon you will have to be 67 to get a full pension; if you take it earlier, the payout is reduced.
Healthcare Rationing. Get used to it,, Relish in it. It is happening now and will become formal soon.
Lopsided demographics are temporary. If temporary is for the foreseeable future.
What you really need is women (and men if you are into that sort of thing) who can expertly suppress their gag reflex for $20 a go.
You are in a service economy now, after all.
Limitless demand for that shit.
Just picture my balls slapping your college educated daughters drool covered chin and you see what the elites have planned for the US worker of the future.
That and loud queefing (google it) after I pull out of her/him/it.
That is the training for the next generation. That and cooking long pig.
Look forward to the domestic US dollar being worth fuck all since that is its true value.
Corn flour battered baby boomer and VD meds. That's the US future.
Yes, of course I'm a sick fuck.
You'r probably not wrong.
Sold the fuck out, biblically.
He lost me at "global warming."
Yea, me too.
Too bad he raised good points after that. Mostly on firewalling yourself through emerging markets with positive demographics.
Jus because you don't believe in global warming, doesn't mean global warming doesn't believe in you.
Why? He didn't say AGW.
Even if he had, are you saying that someone who is wrong about one topic cannot be right about any other?
A: Man is causing the planet to warm, and money is debt.
B: Man is not causing the planet to warm, therefore, money cannot be debt.
C: You're both idiots.
No wonder nobody can agree on anything.
Sheesh!
Good news is elderly boomers give off relatively less heat and CO2 and don't/can't own cars so global cooling will begin soon.
"Global warming", you say?
I get a lot of Solar Warming. Seasonally double-adjusted.
When I lose my job will the goverment pay for my vacation too? thats all i really care about, vacation.
Duh
I prefer Xannax over cake.
Just crush some of the Xanax and sprinkle it in the Betty Crocker mix. Then you can have your cake and your Xanax tooTM
Also, +1 for misspelling Xanax but maintaining its palindrome status.
I prefer Clonazepam over Xanax.
I prefer Popov.
Which is why the government wants mass immigration. But the immigrants of today want benefits now, not after working decades to earn them. Our forefathers didn't expect benefits at all.
I see many new immigrants on medicaid and food stamps.
Their just new DNC voters.
That's why DC wants them.