International Finance in One Easy Lesson

[August1991]

Good, short read.

The aging pensioners of Europe and Asia must find young people to pay interest into their pensions, and they do not have enough young people at home. Germans aged 15 to 24, on the threshold of family formation, comprise only 12% of the country's population today and will fall to only 8% by 2030. But one-fifth of Germans now are on the threshold of retirement and half will be there by mid-century.

It is fashionable these days to blame the Americans for borrowing instead of saving. In effect, Americans borrowed a trillion dollars a year against the expectation that the 10% annual rate of increase in home prices would continue, producing a bubble that now has collapsed. It is no different from the real estate bubble that contributed to the Thai baht's devaluation in 1997, except in size and global impact.

The monster is not the financial system, crooked and stupid as it may have been. The monster is the burgeoning horde of pensioners in Germany and other industrial countries. It is easy to change the financial system. The central banks can assemble on any Tuesday morning and announce tougher lending standards. But it is impossible to fix the financial problems that arise from Europe's senescence. Thanks to the one-child policy, moreover, China has a relatively young population that is aging faster than any other, and China's appetite for savings vastly exceeds what its own financial market can offer.

There is nothing complicated about finance. It is based on old people lending to young people. Young people invest in homes and businesses; aging people save to acquire assets on which to retire. The new generation supports the old one, and retirement systems simply apportion rights to income between the generations. Never before in human history, though, has a new generation simply failed to appear.

Asia Times

[marcinmoka]

The name escapes me, but I do recall hearing of a satirical novel in which the world is plagued not by ethnic conflict but inter-generational, and in which the older generations are bombarded by ads touting the benefits of euthanasia and such.

[M.Dancer]

The name escapes me, but I do recall hearing of a satirical novel in which the world is plagued not by ethnic conflict but inter-generational, and in which the older generations are bombarded by ads touting the benefits of euthanasia and such.

Logan's Run?