Month: March 2010

Economy#5: Baby Boomer Retirement and What It Means For the Economy

Photo by: mikol ice

This post is part of my World-Changing Wednesday series. These are a collection of thoughts on issues which I think will have a huge impact on how we live our lives in the years to come.

Populations of Industrialised Nations Are Ageing

There is a troubling trend brewing and it’s going to change many of the things we thought we knew about the economy.

In 1960 there were more than 5 workers per retiree in the USA. By 2007, that ratio had dropped to only 3.3 to 1, and by 2032, that ratio will have plummeted to a thoroughly unworkable value of 2.1 to 1. This same pattern is shown throughout the developed world and every country will be affected in some way. This trend comes about as a feature of the so-called ‘Baby Boom’ which occured post WWII.

The easiest way to visualise this issue is using a demographic pyramid chart. This first chart represents a more ‘normal’ population distribution; in this case Australia in 1971. Humans evolved over countless millennia with a population pyramid that looked something like this. This distribution is capable of supporting an entitlement program based on transferring wealth directly from younger workers to older retirees, such as the age pension in Australia and social security in the USA.

When we cast this chart of Australian population forward to 2008, the baby boomer bulge is quite apparent. While it may not seem like much, the ‘hole’ that exists in the population behind the baby boomers represents an enormous challenge, and will greatly complicate how the economy operates in the decades to come.

Boomer Wealth Based on Massive Credit Bubble

The ‘Boomers’ are the wealthiest generation ever. They hold nearly all of the assets in developed nations.  In my article entitled The Debt Trap (Our Economic System is not Sustainable), I explained how our economic system is based entirely on debt and that current levels of debt are without precedent.  The biggest credit bubble in history has been inflating since the beginning of the post WWII baby boom and that bubble has fueled the massive wealth accumulation of the Boomers. 

We have already seen that exponential growth in debt (which underlies the Boomer wealth) only appears to be sustainable when asset prices rise fast enough to keep the financial system solvent. Without continuous economic growth, the entire monetary system will collapse and we are already seeing the beginning stages of this process.

 

Percentage of nations’ population aged 65 and over: Chartsbin

What Happens When Boomers Want to Retire?

Unfortunately for the Boomers, they will need to sell off the assets which define their wealth in order to fund their retirements. The question then is: Who exactly are the Boomers planning on selling their assets to? Even if Generation X somehow could afford to buy all these assets, there simply aren’t enough people in this generation to buy them. One has to wonder, given the demographic forces in the Western world, if there is simply going to be more sellers than buyers in the coming years as the Boomers liquidate.

If we are operating an economic system which must continue to grow exponentially to survive, we have to question how this can happen if Boomers are retiring en masse and there are fewer behind them to take their place?

  • Will assets plummet in value as they are repriced to the reality of what Gen X can afford?
  • How will this affect the Boomers’ expectations of a comfortable retirement?
  • Will the younger generations be expected to work harder to pay for those promises made to the Boomer generation?

This sort of demographic profile will be with us for decades and setting policies to encourage population growth are probably not the best way to solve the problem given that we live on a finite planet and cannot support further exponential population growth. This issue is one that we’d do well to recognise and plan for rather than ignore.

Boomer retirement has already begun, and the pace of this will accelerate rapidly over the next 15 years.

The next twenty years are going to be completely unlike the last twenty years. ~ Chris Martenson

Soon, I’ll write another post with more specifics on what this means for my generation (Gen X) and those coming through behind.

Read more from me:

Energy#2: The Economy and Oil (The Long Decline)

Environment #1: The issue of Human Population Growth

Trends to Watch In Australia – We Could Soon Be Dragged Into the Global Recession

Living in the USA as an Australian has been a very unique experience. I have been able to watch the global financial crises ‘from the inside’ while knowing that my home country has so far escaped the worst of it. There seems to be a certain level of smugness emanating from the Land Down Under. Somehow Australians were more clever; our banks didn’t collapse and our Government’s response to the crises was supposedly very effective. I however, think that Australia has just been darn lucky up until now and I don’t think ‘the lucky country’ (as we like to call it) will avoid this Global Recession.

There are two large systemic risks which I believe could drag Australia into the recession which has been impacting the rest of the world for the last couple of years. The first of those risks is the deflating of the Australian property bubble. The second, the collapse of exports to China. I have been keeping a very close eye on both of these trends as I consider that they will have the largest impact on how Australia weathers this global storm.

Australian Housing Bubble

While most industrialised nations have watched their housing prices plummet, Australian property prices are still heading into the stratosphere. Last October I wrote a post about the looming Australian housing bubble. Since then, all the risks I identified have only increased. Housing is now even more unaffordable, individuals (especially first home buyers) are in more debt and interest rates have continued to rise.

There are starting to be more articles in the news confirming my suspicions that the housing market is overheating. Today’s news is particularly interesting because for the first time ever, the Governor of the Reserve Bank of Australia has gone on commercial television to warn of the risk. To my mind, this is big news.

THE nation’s top central banker has taken the unprecedented step of being interviewed on commercial television, in doing so warning property buyers not to borrow too much. Some analysts have interpreted the unusual appearance as indicating that the Reserve Bank is concerned that the property market may become overheated.

 In the first of a series of excerpts from the interview, being broadcast on Sunrise this week, Mr Stevens cautioned against property investment as a “riskless” path to riches.“I think it is a mistake to assume that a riskless, easy, guaranteed way to prosperity is to be leveraged up into property,” he said.

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Most pundits who believe that housing prices will just keep growing say that the demand from new immigrants is what will keep prices rising into the future. The Australian population has been growing at roughly double the rate of other industrialised nations however just recently there have been more vocal discussions about whether all this immigration is a good thing for Australia. If this movement gains traction, this could have an impact on the future of housing prices.

Kevin Rudd has made it clear that he believes in a big Australia. In a recent speech he declared that migration was “good for our national security, good for our long-term prosperity, good in enhancing our role in the region and the world”.

But the Federal Opposition and the Greens said questions needed to be asked about Australia’s immigration plans. Opposition immigration spokesman, Scott Morrison, told the ABC there should be an inquiry into how many people the nation can support. “It’s about what the carrying capacity is,” he said.  “We need to get that perspective from regional areas as well as metropolitan areas, where issues of congestion and housing affordability are major problems as well as public transport.

Greens Leader Bob Brown said there should be an independent national inquiry into Australia’s population target. “So that politicians do have an idea of the carrying capacity of this country, its infrastructure, its ability to deal with those quite worrying projections of 35 million people by 2050,” he said.   “We’ve got to do better than just say well let it happen.”

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Collapse of exports to China

Australia is heavily reliant on trade with China and China’s seemingly miracle growth of the last decade has certainly been good for the Australian economy. While most of our other trading partners have been impacted by the global recession, Australia has been mostly coasting along on China’s coat tails.

However, all is not as it seems in China. A debt-fueled credit bubble has been responsible for enormous investment in infrastructure and now entire cities still remain empty. This is a huge trend to watch, as the outcomes of this will not just affect Australian exports, but could reverberate around the world.

FITCH Ratings warned that banks in China face the greatest “bubble risk” of any Asian country, one day after it downgraded two mid-sized Chinese banks due to the rising threat of bad credit.

The agency’s comments in an Asia-wide assessment of the banking sector come as concerns mount that Chinese banks may be headed for trouble over bad debt after a record lending spree last year.

“The agency views ‘bubble risk’ as greatest for Chinese banks given their 32 percent loan growth in 2009; this looks likely to be followed by a further 20 percent in 2010,” Fitch said in a statement.”Credit growth of more than 50 percent over a two-year period in an economy where bank credit is already quite large relative to gross domestic product almost inevitably involves some misallocation of credit,” it added.

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Prospects For the Lucky Country

Yes…Australia has been lucky to escape the worst of the Financial Crises until now, but that luck might not last. There are a couple of large, systemic risks which if realised could quickly drag Australia into a recession the magnitude of which we haven’t experienced in our lifetime. Trust me…sitting here in California, it’s not pretty.

We have been given this opportunity to get our ducks in a row (so to speak). These couple of years could have been put to good use in preparation for what is coming. Now is the time to make sure you have emergency funds in place in case of job loss, get out of debt as much as possible and generally get prepared to hunker down through some hard times.

Photo by Garry – www.visionandimagination.com

Independence Days – Earth Hour and My Week in Washington DC

Sydney Harbour Before Earth Hour

Last night I flew back home to San Diego from Washington DC. In the process I missed Earth Hour. Instead of turning off my lights to show solidarity with a very worthwhile movement, I was undertaking one of my worst environmental impacts…..flying. *sigh*

This morning I decided to have a look at the Earth Hour website to see how it all went. I was very pleasantly surprised to find some fantastic ‘before and after’ shots from around the world. I am flabbergasted to see the huge difference that was made to the skylines of some of the most famous cities in the world. There must have been a lot of people behind this and that gives me hope. Now we just need to convince people to lower their electricity use every day of the year rather than for one hour. Baby steps I guess.

Sydney Harbour During Earth Hour

I really enjoyed my week in Washington DC. I caught up with a lot of people I haven’t seen in a while and attended some very interesting briefings. Let’s just say that is appears that the U.S. Govt is well aware of Peak Oil and the potential ramifications of the impending reduction in oil supply, even though nothing is being said to the public about this issue. Interesting times ahead.

I also attended a Ball in DC with the Australian Ambassador to the U.S., Kim Beazley. He’s very well-known in Australia so it was great to actually meet him. He had some very interesting stories to tell.

Yesterday I got to tour the White House, which was another fantastic experience. It is absolutely beautiful inside, with gorgeously decorated rooms complete with floor to ceiling windows overlooking the White House lawn. I imagine that when it was built the White House would have been so impressive…in fact it’s still impressive in this day and age. It was also a beautiful sunny day in DC and the cherry blossoms were in full bloom. All in all it was a great week, but it’s also good to be home.

Photo by: jdanvers

As far as my Independence Days update, I don’t have all that much to share this week for obvious reasons.

Preparedness

Grow some food

  • Looks like I’ll be spending much of today in the garden. I’ve already been weeding this morning and pulling out some of the collards which have gone to seed in my absence.
  • Our fava beans have finally started producing some pods. I’d given up on them, but it seems the pollinators have been busy recently.
  • Our snow peas are really productive now as well. Looks like snow peas are on the menu most nights this week.
  • Some of the beets are ready. I hadn’t checked them closely in a while so I was surprised to find how big they were. I think I’ll pickle a few of the biggest ones and then we might roast some of the smaller, more tasty beets.

Is Your Money What You Think It Is?

I’m away in Washington DC for the week and won’t have the opportunity to post. In my absence, here is some interesting reading on the nature of money from The Daily Reckoning.

Doug: Aristotle, in the fourth century BC, was the first person to define what money is. And what is it? It’s a store of value and a medium of exchange.

The paper we use today is a medium of exchange – it got that way because governments made it illegal not to accept it – but it’s not a good store of value. And it’s rapidly and radically becoming less of a store of value. What we use as money today is actually not money; it’s currency. Technically, that’s simply a word that indicates a government substitute for money.

What does make for good money? Again, Aristotle gives us the answer. It’s something that has five characteristics: it’s durable and divisible, consistent and convenient, and has value in itself. And for these reasons, gold is almost certainly the best thing to use for money. Not because I say so, nor because Aristotle said so, but because, over time, people have found it to be the most durable, divisible, consistent, convenient, and inherently valuable thing to use. Silver is also good, but it’s less durable because it corrodes. And less convenient, in that it takes about 60 times more of it – at the moment – to offer the same value as gold. Copper is the next traditional step down the ladder.

<—–>

Louis: But we don’t use gold today…

Doug: No, it’s as though a bunch of friends without any real money started exchanging IOUs for money, and then after a while forgot that the IOUs were supposed to represent, and be redeemed in, real money.

The problem with this is that, in the case of the IOUs between friends, paper is based solely on hope and trust. One can move away, or die, or turn dishonest, or become insolvent – many other things could happen. A guy stuck with a dead man’s IOU has nothing.

With government IOUs, or currencies, it’s worse, because they can increase the number of IOUs in circulation without telling anyone – that’s what inflation is. Since the government creates the IOUs, it gets the benefit of spending them before the inflation they create raises prices, which is basically stealing from the people. And, of course, sometimes governments do “die,” leaving the holders stuck with nothing, just as with the IOUs between friends. In fact, it’s arguably far more likely that such problems will arise from trusting a government to print IOUs than from trusting a friend.

Doug Casey and Louis James
for The Daily Reckoning Australia

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Photo by: Jonathan Pobre

Where in the World? Eagle River, Alaska, USA

Last winter Brendan, my Sister-In-Law and I went to Alaska to visit long-time friends. Having come from Southern California (or Australia in my SIL’s case) the cold was a shock, but everything was just so beautiful blanketed in perfect snow.

A highlight of our week was visiting Eagle River, named for the bald eagles which are abundant in the area.

These are truly magnificent birds and it was a real honour to see them in the wild.

They are also quite massive, something these photos can’t really depict.

Once a week in winter, one of the local ladies throws out some salmon, and a feeding frenzy ensues. There were literally hundreds of bald eagles waiting in the trees for the weekly ritual.

Check out more photos from my travels

Ten Rules for Being Human

by Cherie Carter-Scott

1. You will receive a body. You may like it or hate it, but it’s yours to keep for the entire period.

2. You will learn lessons. You are enrolled in a full-time informal school called, “life.”

3. There are no mistakes, only lessons. Growth is a process of trial, error, and experimentation. The “failed” experiments are as much a part of the process as the experiments that ultimately “work.”

4. Lessons are repeated until they are learned. A lesson will be presented to you in various forms until you have learned it. When you have learned it, you can go on to the next lesson.

5. Learning lessons does not end. There’s no part of life that doesn’t contain its lessons. If you’re alive, that means there are still lessons to be learned.

6. “There” is no better a place than “here.” When your “there” has become a “here”, you will simply obtain another “there” that will again look better than “here.”

7. Other people are merely mirrors of you. You cannot love or hate something about another person unless it reflects to you something you love or hate about yourself.

8. What you make of your life is up to you. You have all the tools and resources you need. What you do with them is up to you. The choice is yours.

9. Your answers lie within you. The answers to life’s questions lie within you. All you need to do is look, listen, and trust.

10. You will forget all this.

Photo by: jaime.silva

Independence Days – Spring Cleaning is in Full Swing

Spring has sprung and for some reason I feel like cleaning. If you know me well, you know I never like cleaning. But something is in the air and I’ve been de-cluttering and tidying up various nooks and crannies around the house. Perhaps it has something to do with being stuck inside for weeks when I was sick but whatever it is, I’m embracing it while it’s here. Who knows how long this will last.

I’ve been a little quiet around the blogosphere this week, so my apologies for not coming by and catching up on your blogs. No excuse, just haven’t felt like being on the internet. We also had a visitor from Australia who we’ve been catching up with. I’ll be even quieter next week because I’m heading to Washington DC for the week with work.

Anyway, on to a very short roundup of my activities this week.

Preparedness

Getting Off the Economic Grid

  • Would you believe that Brendan has had another business proposition this week? On top of his personal training and bicycle repair businesses, it looks like he is now doing some consulting work for a renewable energy start-up. We don’t have all the details yet, but it looks like Brendan will be designing systems and managing projects for off-grid wind and solar systems. This is exciting news. I hope I can share more in the months to come.

Grow some food

  • Plenty of weeding after all the rain we’ve been having
  • Sowed seeds: Tomato, Basil. WooHoo! Warm season crops are starting!
  • Eating: Collards, Snow Peas, Spinach.

Photo by: johnnyalive

Some thoughts on Voluntary Simplicity

A couple of weeks ago I wrote about changing the culture of consumerism. Today I want to take a step backwards from that discussion and talk a little about voluntary simplicity. I started along the path to voluntary simplicity when I finally realised that most of the stress in my life was being caused by the lifestyle I had chosen to live. Voluntary simplicity appealed to me as a philosophy because it is about making a conscious choice to downshift and simplify to create the life that fits me best.

Some people associate voluntary simplicity with frugality, but voluntary simplicity and frugality are two very different concepts. Frugality is a tool that makes the simpler lifestyle possible, but it’s not the end goal. Voluntary simplicity does not mean you have to live in poverty or practice a lifestyle of self-denial. It’s actually quite the opposite. Developing the habit of being frugal where it really counts can leave you with more discretionary money and time, plus the freedom of being able to decide what to do with both.

Despite huge gains in material wealth over the last 60 years, our society’s happiness levels have remained steady. Our culture of consumerism and materialism does not appear to be making us any happier. Constantly seeking further material wealth (i.e. needing more money to pay for more “stuff”) seems to trap people in jobs they hate and lifestyles that leave them feeling dissatisfied and unhappy.

The authors of Affluenza: When Too Much is Never Enough argue that this addiction to material growth causes over-consumption, “luxury fever”, consumer debt, overwork, waste and harm to the environment. These pressures lead to “psychological disorders, alienation and distress”, causing people to “self-medicate with mood-altering drugs and excessive alcohol consumption”.

Voluntary simplicity provides an alternative. It’s offers the opportunity to find balance in your life, connect with who you really are and create a lifestyle where you wake up each morning feeling a sense of fulfillment and excitement about the day ahead.

Choosing voluntary simplicity does not have to be a complete lifestyle change all at once. Making just a few small changes in your life can make a major difference.

  • Start by limiting unnecessary purchases. Determine if what you are buying is something you really need or if you a going to still want it a few years from now. Buying something on impulse or just because it’s the latest fashion trend may not be the best use of your money. Perhaps the money could be better used for something more aligned to your values.
  • Think carefully about how you are spending your time. Are you rushing around to activities or events that are meaningless to you? Frugality of time is sometimes more important than frugality of money. Start doing things that bring you joy and stop doing some of those things that cause you to feel stressed and unhappy.
  • Appreciate your family life and enjoy the people you love. Spend time with each member of your family and build strong relationships.
  • Do it yourself and become more self-reliant. Learn skills and teach yourself to fix things.
  • Make a connection with nature. Take a short walk, spend some time working in the garden, or just get outdoors and enjoy the beautiful day. You’ll be amazed how much more relaxed you’ll feel.
  • Re-think the way you shop for groceries and the foods you eat. It’s true that “you are what you eat”. Eating REAL food and avoiding preservatives and additives will help make you healthier and happier.
  • Try to find a balance between work and relaxation. Everyone needs some downtime, both physically and emotionally.

Voluntary simplicity is not a limiting lifestyle. Choosing to live consciously and deliberately will give you freedom, more quality time, more discretionary money and more appreciation and enjoyment of every aspect of your life.

Voluntary Simplicity – What is it, and why I want it.

Voluntary Simplicity, Frugality and why all this economic stuff is relevant

Photo by: {Erik}

Where in the World? Greenwich Village, NYC, USA

In early 2008, my friend and I spent four days in New York City. We both had high hopes for our visit to one of the most famous cities in the world but unfortunately we were both a little underwhelmed. Perhaps our expectations were too high. Perhaps we’d both seen too many superior cities in our lifetime. Perhaps we didn’t like shopping enough (which seems to be what most people love about NYC).

Having said that, one of the areas I quite liked the feel of was Greenwich Village (sometimes known simply as the ‘The Village’). In the late 19th to mid 20th centuries Greenwich Village was very much the bohemian capital and although gentrification has taken place in recent years, it still has a good vibe.

Greenwich Village was once a rural hamlet, so its street layout is more haphazard than the grid pattern of the newer parts of town. Many of the neighborhood’s streets are narrow and some curve at odd angles.

Most parts of Greenwich Village comprise mid-rise apartments, 19th-century row houses and the occasional one-family walk-up, a sharp contrast to the hi-rise landscape in Mid and Downtown Manhattan.

We were in town not long after the economic crash of ’08, and signs of the times were visible all over town.

There were lots of cats and dogs on the streets, and being an avid pet photographer, I couldn’t help snapping some shots to add to my collection.

I love old architecture. I think most new buildings are missing a soul, so of course wandering around ‘The Village’ was a real treat after a couple of days trapped among skyscrapers.

The skyscraper <.> is the human stable, stalls filled with the herd, all to be milked by the system that keeps the animals docile by such fodder that as it puts in the manger and such warmth as the crowd instills in the crowd. ~ Frank Lloyd Wright, America’s Tomorrow 1932.

New York City seemed very dog friendly. So many people were out walking their dogs at all times of the day and night. As in the rest of the USA, take out coffee is also popular.

Plenty of interesting ‘wall art’ to be seen. The ATM looks a little out-of-place here.

Just like in the movies: Basketball courts can be found on street corners, where locals gather for a friendly game.

Greenwich Village NYC 9

Check out more photos from my travels