Unfortunately, given the global economy’s aging population and slowing growth, there are two major issues that foretell a coming retirement funding crisis.
Market Realist – The graph above shows how the proportion of people above 65 years has been increasing the world over. Though the U.S. (SPY) is in better shape compared to the European Union (EZU) and Canada (EWC) at present, it’s worse off compared to developing countries like Brazil (EWZ), China (FXI), and India (EPI).
Aging populations indicate slower growth rates, which result in lower demand for capital goods and services. This in turns lowers inflation, which results in lower interest rates. Plus, potential monetary policy stimulus would also push rates down. The U.S. also has to deal with its social security and entitlement programs, which would pressure the economy as the population ages.
1. Government debt levels remain elevated, a troubling prospect considering that the US government has failed to address entitlement reform and an aging population will put increasing demands on state coffers. As a result of softening the blow to the household sector during the last financial crisis, most governments, and specifically the U.S. government, have levered up their own balance sheets.
Market Realist – Deleveraging has only occurred in the U.S. financial sector, but federal and corporate debt levels remain elevated. We can attribute this trend to the Fed’s bond buying program, which has kept U.S. Treasury rates (TLT) low.
Read on to the next part of this series to see how U.S. federal debt has been climbing since the crisis.