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Since all the way back in the 1960s, it has been portrayed as a looming and impending economic shockwave that would one day rock the entire world. However, back in those days, the event was viewed as a distant futuristic apparition 50 or more years away and so, for many, it really wasn’t taken all that seriously.
Now “fast-forward” 50 years to 2010 and suddenly this dreaded circumstance is not simply looming off on the near horizon or hovering right around the corner, but has now actually arrived with a tremendous thud.
Prominent economist Niels Jensen, Senior Partner of “Absolute Return Partners” in London explains that “We cannot all export our way out of the problem. There is a global adjustment that must happen and when it does, it will have serious consequences for all.”
As larger and larger portions of the world’s populations move closer to retirement and begin to spend out of their savings or start to “call in” their golden nest egg, supposedly safely secured away for them in pension funds and retirement accounts across the globe, what will the actual economic effects be?
According to John Mauldin,
“There is more than just a credit crisis and a government deficit crisis in our future. A rising level of retirees to workers is happening even as I write. And the US is not, for once, the center of the problem.”
So while we in the west have remained at least remotely cognizant since the 1980s that the “Baby Boomers,” born as a direct result of soldiers excitedly returning home after World War Two, were getting closer to the age of retirement, we somehow forgot that the word “World War” actually refers to the entire world!
However, the 80’s were a booming time of “I, Me, Mine” mentality and many of the top economic prognosticators simply weren’t even considering factoring in the reality of progressively aging populations all around the planet, into their calculations for the new millennium.
Mr. Mauldin explains that we got ourselves into this huge mess due to years of spending money we simply didn’t have, as “a large number of countries … became credit junkies and spent beyond their means, year-in year-out. Conversely countries with large current account surpluses (e.g. China, Japan and Germany) were only too happy to deliver the drug to the intoxicated.”
Mauldin then continues to explain that,
”It is therefore too simplistic to suggest that only the deficit countries are to blame. The suppliers of credit must accept that they carry no small part of the responsibility, just like the drug dealers do when supplying junkies.”
What's the Solution?
So one obvious solution to get the entire planet back on track is for the “deficit nations” to become far more disciplined and start saving a lot more and spending a lot less, while the “large surplus” nations should actually entice their citizens to get out and prime the pump of the economy by investing and spending more, where those additional expenditures are well within reason.
However one problem that is not so easily overcome is the fact that our “Dependency Ratio” globally, which currently is “30” world wide, is growing exponentially every year. The “Dependency Ratio” of every nation is calculated determining the number of people who are age 65 out of a group of every 100 people between the “so called” productive or working ages of 15 to 64 years of age.
The higher that our “Dependency Ratio” increases, the fewer people we have available to productively work in order to continue paying for the existence of those too old or unable to work. It is feared that, at the rates we have seen the “Dependency Ratio” growing over the past 30 years, we may very soon reach a point where the mere cost of supporting our elderly will reach a level that could lead to economic disaster, not just nationally for a few debtor nations, but globally for the entire planet.
More from GFC, Below
However, as the problem is not simply a matter of concern in the west. For example, in the United States, the “Dependency Ratio” is currently 19 and expected to reach 34 by the year 2050. But the country that is aging the fastest in the entire world is in the east.
Japan, currently struggling with supporting a number of retires that place its Dependency Ratio at 35 today is expecting to increase that number to an astronomical 76 by the year 2050. While the Japanese economy has been struggling to keep its head above the water during its current 20 year slowing of its once vital and vigorous economy, Japan is now openly admitting that it’s national economic policies of the past and present have now manages to position the once mighty economic titan for a major fall.
OK, so if the economic giants of our recent history, the U.S. and Japan have both hit the wall, then this might be a perfect opportunity to see some financial sunlight shinning of the European Community, right?
Wrong! As a matter of fact, several prominent economists say that Europe may actually be worse off that Japan, due to much lower percentages of savings, causing serious concerns regarding the health and sustainability of Europe’s entire welfare model.
According to the IMF, the cost of “Age Related Spending” throughout Europe will soon cause public “Debt to GDP” to grow to over 400%, with Spain and Greece reaching over 600% unless the existing welfare model is seriously reduced.
By comparison, Japan, currently the world’s highest public “Debt to GDP” ratio today is only around 225%. Meanwhile, according to most economic calculations, sometime by the middle of this century, both China and Russia will actually have a higher dependency ratio than those found in the European Community!
However, there is definitely a silver lining and bright rays of sunshine clearly perceivable down at the other end of the global economic train tunnel. This is in pat, due to many newly emerging economies around the world. These nations will very soon and in some cases, already now offer awesome investment opportunities that tower well above many of the traditional, more mature markets.
Ready To Grow
Theses economies are primed and prepared to grow strong, fast and continue to expand, as entire countries, as a whole, are simultaneously leaving their status as 2nd and 3rd World nations behind them, as they are now globally being welcomed into “1st World for the very first time.
We’re talking countries such as: Brazil, Chile, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, South Africa, South Korea, Taiwan, Thailand and Turkey, just to name some of the most obvious “up and coming” options available for serious investment considerations.
These previously under-developed countries have very young populations and a huge and dedicated work force that has not been spoiled or made fat and lazy by living the “good life” with very little effort invested, for decades if not centuries
If those very same countries and individuals who have wisely and successfully set a reasonable amount of money aside for a rainy day are now ready to gift themselves, as well as the rest of the world population with a gigantic, shining economic rainbow, their day in the sun has just arrived.
Wisely investing savings into these newly emerging economies, that have the potential to deliver exceptional returns and much higher standards of living for themselves, as well as the rest of the population of Planet Earth, could prove to be the move that saved us all and made those insightful investors very impressive gains in the process.