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Email this12:27 pm
August 9, 2014
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As a common knowledge, all major economic systems in the world are suffering from aging population, or at the very least, slow down in the growth of population (Possibly with the exception of India, Nigeria, and Indonesia). Does that mean economic growth of world's economy will slow down and remain low for the foreseeable future, consider labor supply is one of the factors of productions, and labors are also consumers ?
Does that mean we should all move away from stocks, and move to GICs, high quality bonds, and other fix income assets, in light of the experiences in Japan?
Added later: This is assuming we don't have a technological breakthrough in the near future, such as someone become real life Tony Stark and figure out how to do nuclear fusion
.
12:00 am
October 21, 2013
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I think basically "yes".
8:00 am
September 11, 2013
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Hard to say. It's true there are always negative factors to focus on but I'm a glass half-full type of guy re investing and I don't see Japan as the only harbinger of the future. To me there are always investment opportunities (e.g. never been more humans on earth to be lifted from poverty to Trudeau's notion of "middle class", just to give one of a myriad of factors) somewhere, so lots of dough to be made. The Western world is a spent force for the foreseeable future, I agree, but conversely there are billions of people on earth elsewhere with their first taste of escaping poverty so huge economic development to come is to me just as possible during our lifetimes.
8:43 am
April 6, 2013
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Also, North America does not have some of the "loss of face" cultural issues that Japan did.
In North America when a business defaults on its rent or loan payments, the landlord or bank will start legal action to evict or recover the money owing. Afterwards, the space can be rented out or what money recovered can be deployed to another business that is hopefully more productive.
In Japan, there used to be lots of commercial properties and capital tied up in unsuccessful "zombie" businesses because no-one wanted to cause "loss of face" by evicting or pushing a business into bankruptcy.
It wasn't just an aging population that Japan had challenges with.
8:50 am
April 6, 2013
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One doesn't need population growth for economic growth.
Companies like Apple, Amazon, and Google are not growing because of growing population. Same with the pharmaceutical companies.
I'm beginning to think it is the politicians and governments that really need population growth. Population growth is an easy way politically for government to increase tax revenue and grow the public service without "increasing" taxes.
In contrast, investors and businesspeople are okay with a mature business that pays out 7% each year with no growth in their original investment. There used to be a whole class of desirable investments like that. They were called income trusts.
10:35 am
December 15, 2016
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I don't think anyone knows where the world is going but I will remain as diversified as possible because with the way governments are spending we could all be headed the way of Greece or Venezuela. VBAL and XGRO are a few of the other options that I'm holding.
Could this happen ?
"With those policies maxed out, “in the 2020s it seems inevitable that a world of helicopter money awaits,” Deutsche Bank predicts.
https://business.financialpost.com/pmn/business-pmn/recession-robots-and-rockets-another-roaring-20s-for-world-markets
I hope I'm wrong, but someday they may wipe out the savers and inflate their way out of the mess that their irresponsible spending has caused.
12:06 pm
October 27, 2013
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The trouble with inflating their way out of debt is interest rates will have to follow at some point sending debt servicing costs soaring. There is no free lunch.
1:04 pm
December 15, 2016
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AltaRed said
The trouble with inflating their way out of debt is interest rates will have to follow at some point sending debt servicing costs soaring. There is no free lunch.
Agreed, interest rates will soar but for how long until they default. Then what ?
Like you say, there is no free lunch but sadly enough it will probably the savers that will be punished.
1:18 pm
August 9, 2014
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Nearly all the world's government are going to face serious financial problems due to aging population, as pension and healthcare cost will soar, this is one of the most serious problem going forward in the world's economy. This explain why our government welcome new immigrants.
Trying to inflate our way out of this problem by having expansionary monetary policy is nothing more than fool's errand. This is because in the long run, a economy cannot generate more output that the factors of production it have. (Classical school of economic)
That being said, with automation and possible wholesale elimination of many white collar jobs, aging population may means unemployment rate will remain low....
1:36 pm
August 9, 2014
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Bill, many of those middle class in developing country are created as a result of labor intensive export centered manufacturing industry. This is how middle class is build in Japan, Taiwan, and South Korea. However, with further automation of manufacturing industries, these types of jobs maybe turning into history, and no developing countries may work their way up as a result.
An example of this is Argentina, by exporting huge amount of agricultural products in time of rising commodity price, Argentina was one of the richest country in the world. If memory serve me correctly, their GDP per capita was higher than France at one point, and people were thinking that Argentina was going be the future superpower(!!!!). Yet they fail to industrialize due to lack of enterprising spirit of the people as big land owners that export those agricultural product refuse to invest in anything beside their farm. Look at where they are now......
(Entrepreneurship is one of the factors of production, beside land, labor and capital - equipment that is, not money)
4:52 pm
September 11, 2013
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Jon, I don't disagree, though your Argentina example re commodity exports doesn't really relate to your idea re middle classes built on manufacturing for export. But I agree, the past is never repeated exactly the same, but the future always has a way of unfolding some unexpected ways/places to create wealth. For example, much wealth has been created in the last few decades in new technology and/or financial centres. And Canadians enjoy a higher standard of living than ever despite smaller % of Canada's labour pool working in manufacturing and commodity exports.
I certainly do agree that "enterprising spirit" is key, and seems to me that is keenest where people sense a real opportunity to exit poverty into the middle class, and there are always places where that is the case. But I also agree that if you have trepidation about the future then fixed income may indeed be the best option for you. GIC returns vs equity investments have been paltry for a couple of decades or so but if your goal was not to get rich but rather to sleep soundly then perhaps that was the way to go for you.
5:58 pm
August 9, 2014
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Bill, the gist of what I want to say is commodity export industry doesn't hire many people, as a result, a middle class is difficult to be build.
I do agree that I like to use the past to extrapolate the future, and I am incredibly pessimistic in a lot of people's perspective. If Loonie have good memory, he may remember that I mentioned the world was entering a dangerous phase because of the rise of China, and I was compare China with German empire, and US as the British Empire.
Entrepreneurship is very important, is what actively turn all the factors of production into GDP. Unfortunately, it is also one of the least study thing in economics because it is difficult to quantify.
9:38 pm
October 21, 2013
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I found this German documentary very interesting.
6:20 am
September 11, 2013
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Jon, (as example) lots of agricultural areas where few jobs but affluent communities due to spinoffs to local economy, don't need lots of workers to have general wealth. More true every day as humans are replaced by technology everywhere. To me the problem isn't wealth, the robots create that even while we're sleeping, governments will figure out how to distribute it, but what do the animals do now with the lives they've been given?
If you are pessimistic, Jon, then I can see why you gravitate towards fixed income, and if that makes you feel better that's the way to go. As I've said here before, though, locking up your money for years at a time in GICs seems to be an odd and risky strategy to me (with minimal return, zero or less after taxes and real inflation) if you think the crap might hit the fan. Get yourself a whack of HISAs so at least you can get at your money quickly if needed. The minimal, if any, difference in rate with 5-year GICs won't make the difference between you being wealthy or not
I definitely agree it's closing time for our civilization, its economic woes are just one of many symptoms, but as you point out China is slowly strengthening (example). Seems to me whenever a Rome is sacked there are new worlds, new groups, on the uptick. People tend to associate the end of their civilization with the end of the world in general but I don't see it that way, even in today's connected world. People got wealthy servicing the Gold Rush miners, few of whom ever struck it rich - heck, all sorts of people even make money in wartime. Always opportunities to exploit, just might require a bit of that "enterprising spirit" you mentioned.
3:29 pm
August 9, 2014
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Bill, I forget to mention that most of those farms in Argentina are not small and individually own as in North America, instead, they are large and own by big company. This cause most people to not have the mean to start business, where small amount of tycoons use the profit from their farms to purchase the latest luxury, and high culture entertainment from Europe, as they are well off and have no incentive to take risk.
That being say, this is only one hypothesis to explain why Argentina fall behind so badly, this is a keenly study and debated topic in the field of economics.
Additionally, I have a little thought about what you say and I think the reason why labor intensive export centered manufacturing industry is key for building middle class (at least in East Asia) is because of the scale it can achieve. You cannot have anything equivalent to Terry Gou's Foxconn that hire millions of people (in one factory that is) to assemble iPhones, where all those people can now afford to provide for their family, and build a large internal consumption market as a result that spur economic growth. This is especially true when you realize wealthy people spend smaller portion of their income. Hence, we cannot just think about the production side of things, someone need to have job, so they can get pay and spend money, and automation may spell trouble in this aspect as jobs are eliminated.
(My brain hurt a little at the moment....)
6:34 pm
September 11, 2013
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Jon, I see what you're saying about job losses due to automation leading to a dearth of consumers, that's certainly a factor among many. No doubt there are ALWAYS big challenges for humanity, we could go back and forth forever but my approach (I don't like to hurt my brain either!) is to try to focus on what/where new good things are coming. And lots of people are like that, that's what the constant waves of migration throughout history are all about, people have an impulse to move to where they expect things will be better. And life has never been better for the 99% in all of history. That approach makes my brain happier!
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