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Retiring Baby-boomers Will Be Drag On Recovery

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http://business.timesonline.co.uk/tol/busi...icle6736846.ece

The good news is that the recession may have ended in May or June. Recent reports about the recovery in bank earnings and bonus pool allocations, an array of rebounding leading economic indicators, and the buoyancy of equity markets all support that conclusion. Economic forecasts are generally being revised up.

However, as I shall explain, the economic stabilisation is fragile, a second downward leg is possible next year, and longer-term, we are losing the drivers of economic growth of the past 25 years.

In the UK, the British Chambers of Commerce, the Royal Institution of Chartered Surveyors, and the British Retail Consortium have all reported improved sentiment and performance in the quarter to June. Similarly in the US, the leading indicators that have guided forecasters for years, such as new claims for unemployment insurance, the broad money supply, orders for durable goods, and consumer and business surveys have all turned around. Economic recovery in the eurozone seems less convincing, though again, the worst is probably over. Market chatter is that in the third quarter, most leading nations will see an increase in GDP, and possibly quite large increases.

However, we should not be seduced into thinking that this comprises the gateway to a new expansion, because this “recovery†is not yet a match for the four horsemen of: financial instability; loss of leverage; retiring baby boomers and financial exit strategies.

Financial stability is the sine qua non for long-term economic recovery, and the normalisation of conditions in money markets, and in some capital markets, is important. It is thanks to this that banking sector earnings have rebounded, but normalisation is entirely due to the substantial intervention of government agencies and central banks.

In the US and UK, financial stability measures, including capital, asset purchases, loans and guarantees, amount to about 73 per cent and 47 per cent, respectively, of GDP. Eventually, many of these programmes will terminate, government shareholdings will be sold, and the banking sector will have to stand on its own two feet.

In the meantime, even though systemic risk has fallen away, not all banks are safe or viable, as the current problems related to consumer loans and business bankruptcies demonstrate.

Wholesale funding markets are unlikely to recover, and most banks will continue to shrink their assets, remove bad ones from the balance sheet, and rebuild prudential and regulatory capital. Deleveraging will restrain for a while the economy’s capacity to use credit as a lever for economic expansion.

Leverage is hardly likely to return for households, which also have to repair their balance sheets. Many people will pay down debt, and rebuild discretionary savings in the next one to two years. Others may find simply a reduced availability of credit, with more restrictive conditions. If we can’t or won’t use credit to drive economic growth, we shall have to wait until unemployment peaks, and jobs are created again, leading to higher incomes and profits.

Such a turn in the economy, though, isn’t likely until 2010 at the earliest, and quite possibly later.

As the baby boomers — roughly 20-25 per cent of the population in most advanced nations — retire and swell the over-65 segment of the population, the labour supply will fall, or rise only modestly, because of low or declining birth rates. The working age population will grow slowly in the US and the UK, but in most of Europe it is starting to decline now. In Japan, this has been happening for almost a decade already.

In the absence of policy changes, growth will be reduced, and the rise in old age dependency will generate significant financial stress. The main policy shift should be to strengthen labour input and output through employment-creating infrastructure programmes, raising the participation of over 55s and women in the labour force, the pursuit of phased retirement and flexible working practices, and the provision of lifelong learning programmes.

The unprecedented measures taken by governments and central banks since 2008 to stabilise the financial system and the economy will have to be reversed eventually. The trouble is that timing has to be impeccable. Too soon, and a fragile economy could easily deteriorate again and lapse into another economic contraction. Too late, and financial markets may have more reason to fret about the chronic state of public borrowing and debt, and about the risk of rising inflation.

Bond yields may then rise sharply, the exchange rate could come under severe downward pressure, and we should not dismiss lightly the possibility that some nations might be forced to adopt exchange controls. Fears that these outcomes are imminent remain way off the mark, and are often political, but they underscore why “exit strategiesâ€, especially longer-term fiscal restraint, will have an unequivocal impact on the economy.

So we are expecting a growth in GDP then for Q3.

Again the debt remains, we have a huge retirement problem and there are other fundamental problems in the economy.

Long term we have major structural problems.

For the moment it appears the bulls are running and everything is fine, why bother thinking of tomorrow when profit can be made today.

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What I don't understand is that share price rises are given as a reason that the recession is over. Since when have share prices actually reflected the economy? They could be used as a guide at best.

Edited by BalancedBear

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As the baby boomers — roughly 20-25 per cent of the population in most advanced nations — retire and swell the over-65 segment of the population, the labour supply will fall, or rise only modestly, because of low or declining birth rates. The working age population will grow slowly in the US and the UK, but in most of Europe it is starting to decline now. In Japan, this has been happening for almost a decade already.

I dont worry about that so much - those baby boomers - they wont be retiring for the most part

Apart from a few rich ones and ex-civil servants, they wont be able to afford to...

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I dont worry about that so much - those baby boomers - they wont be retiring for the most part

Apart from a few rich ones and ex-civil servants, they wont be able to afford to...

nah but they'll be using the money they made on their houses... oh wait a minute...

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The population available to work is irrelevant, the problem is the £5+ TRILLION in civil service and state pension liabilities that come due over the next 20 years.

The baby boomers want their comfy retirement and someone has to pay for it.

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The population available to work is irrelevant, the problem is the £5+ TRILLION in civil service and state pension liabilities that come due over the next 20 years.

The baby boomers want their comfy retirement and someone has to pay for it.

begging your pardon, but many boomers are NOT public sector...indeed, they make up the average wage to what it is as do all the population...25K, with top earners over 35K

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begging your pardon, but many boomers are NOT public sector...indeed, they make up the average wage to what it is as do all the population...25K, with top earners over 35K

And WTF has that got to do with the £5 TRILLION pension debt?

Even the boomers who arn't owed anything significant will be entitled to a basic state pension plus free healthcare etc

And this is ignoring the fact that a large portion of that debt relates to civil servants who supplied serviced to ALL boomers.

No-one gives a crap how much money the boomer are paying each other, the £5+ trillion debt is still there.

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And WTF has that got to do with the £5 TRILLION pension debt?

Even the boomers who arn't owed anything significant will be entitled to a basic state pension plus free healthcare etc

And this is ignoring the fact that a large portion of that debt relates to civil servants who supplied serviced to ALL boomers.

No-one gives a crap how much money the boomer are paying each other, the £5+ trillion debt is still there.

you said the boomers want their comfy retirement and someone else to pay for it.

boomers have been paying NI for years.

not their fault their governments have pissed it all away.

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And WTF has that got to do with the £5 TRILLION pension debt?

Even the boomers who arn't owed anything significant will be entitled to a basic state pension plus free healthcare etc

And this is ignoring the fact that a large portion of that debt relates to civil servants who supplied serviced to ALL boomers.

No-one gives a crap how much money the boomer are paying each other, the £5+ trillion debt is still there.

Printy printy!

(sorry Injin - it's a good line!)

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The population available to work is irrelevant, the problem is the £5+ TRILLION in civil service and state pension liabilities that come due over the next 20 years.

The baby boomers want their comfy retirement and someone has to pay for it.

Can't pay won't pay, and don't expect anyone else to pay. ;)

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you said the boomers want their comfy retirement and someone else to pay for it.

boomers have been paying NI for years.

not their fault their governments have pissed it all away.

but the boomers were the new labour demographic, the demographic boom that gave Labour the balance of power. They voted for it, now they will pay for it by working many many more years - the private sector ones anyway. There's enough of 'em.

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you said the boomers want their comfy retirement and someone else to pay for it.

boomers have been paying NI for years.

not their fault their governments have pissed it all away.

This is bull.

If they had paid enough for their retirement & care in their lives, there wouldn't be a problem. They have not contributed anywhere near enough to cover the cost and now they are pulling the ladder up after them so us younger generation have to pay for their luxurious retirement and get left with no cushy pension of our own.

We just get handed lots of debt and a fecked up planet. :angry:

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begging your pardon, but many boomers are NOT public sector...indeed, they make up the average wage to what it is as do all the population...25K, with top earners over 35K

You have got to get with the program.

No one under 35 works in the Civil Service, Health Service, Local Government etc. Its the HPC law.

Everyone over 35 has an unfunded pension. Even those who are in defined benefit schemes invested in the Stock market are part of the global conspiracy tio deprive young Brits of their birth right (we will just ignore the fact that is more likely to be young Chinese who will generate the profits to pay these investment based pensions).

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(we will just ignore the fact that is more likely to be young Chinese who will generate the profits to pay these investment based pensions).

the carry trade appears to be collapsing in front of our eyes so I doubt this. Public Sector Pensions are more of a zero sum game, stock market investment is more of a positive sum game. big big difference. One is exploitation, the other is investment.

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Baby boomers paid with their taxes for their parents generation to live in comfort on unfunded pensions, while at the same time paying for the education of their gen x and Y children. We also paid taxes for wars we did not vote for, and all this while having to pay in advance towards our own retirment.

We were then told that the government or busines would not be able to guarantee our retirement funds so we should also be investing in the stock market and property if we hoped to have any sort of comfortable retirement,

Now it looks like we will get nothing back for that. Our investments are dropping in value, and teh government is broke.

To add insult to injury, we have to put up with our whining adult kids moving back home and free-loading off us, and in some case also have our aged parents move back due to the exorbitant cost of nursing homes.

Without doubt baby boomers have been ripped off by all the other generations,old and young to an extent never seen before in history.

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We were then told that the government or busines would not be able to guarantee our retirement funds so we should also be investing in the stock market and property if we hoped to have any sort of comfortable retirement,

Now it looks like we will get nothing back for that. Our investments are dropping in value, and teh government is broke.

As a generation we should have thought quite a lot more morally and carefully about where precisely (whose wallet and for what) these supposed gains from property were going to come from - ("we are all going to get rich by making other working people pay more and more and more for less and less and less") unfortunately the prospect of a great glutinous real estate freebies all round helped many of us remain unobservant.

Edited by Stars

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