Monday, May 7, 2012

The Old World

So my wife said, "What do the elections over in France or wherever have to do with our stock market?"

Because she is polite and was trying seem interested, she probably listened to about half of what I said during the next five minutes.  She caught the part about the Greeks not wanting to get jobs, which is most likely the part she will repeat to her sister when she phones her later. 

Of course, it is a little more complicated than that.  European countries have always given government more sovereign control of their lives than Americans felt comfortable doing.  America has, since the Second World War, provided most of the military support for Europe, allowing the northern European countries to concentrate on domestic welfare and industry.  All the cradle-to-grave care is also cradle-to-grave control.  People have come to expect benefits. 

But the world has changed and is changing demographically.  There is no youthful population of upcoming workers and entrepreneurs to support the rapidly aging populations in their retirement, to pay for their medical benefits, to buy their houses and condominiums, and their stock portfolios, or to support their investments with consumer spending.  The same is true to a lesser extent in America and to perhaps a greater extent in Japan.  The ponzi scheme has run out of suckers.

Despite the billions in poverty in India, Africa, and China, the developed world is in decline in terms of population.  There is youthful fodder for wars in Africa and in the Middle East across to India and China.  That will be the locus of the next large-scale conflicts.  War will not break out in Europe.  Who would fight it?  The Muslim immigrants, perhaps?  There will be unrest and protests.  There may even be a form of civil war, but no battles between Germany and France or any other countries.  At least, I think it is unlikely.  No, Europe will go under mostly with a whimper. 

But it will go under.  The consequences of the arithmetic are inevitable.

The euro is doomed in its present form.  As we saw today, the dollar stands to benefit, at least in the short term.  We could see oil prices and other commodity prices slip.  A stronger dollar could encourage Bernanke to crank up the printing press -- and he may have no choice.  As recession -- even depression sweeps Europe and cools China further, who else would be in the market for U.S. bonds? 

It will be an interesting year.


  1. I have wondered for several years who is going to buy the McMansions when the occupants retire? Same for the stocks when the boomers cash out those investments.

    The continuous growth model has always bothered me. Maybe some good will come from this collapse (if it is gradual) and people will become less materialistic and focus on the other aspects of a well-lived life (who am I kidding?). I read this article yesterday where the author estimates how few people are needed to keep us all fed and sheltered. What would the rest of us do? (Golf and Burning Man festivals I suppose).

  2. Yes, while I think "demographics is destiny" overstates the case, there is a clear parallel between the growth of population that happened with our Boomer generation and the growth in demand that fueled the consumer economy for the last forty years or so.

    If it all comes down to golf, just give me some morphine and a straight razor, but you may be on to something with the Burning Man. As I've said before, there does appear to be growing interest in the Maker subculture. Burning Man is a bizarre (to me) manifestation of that, but there is growth in more fruitful areas. I don't know if you can call it "mainstream", but we have a place locally that specializes in what you might call "craft" candy and chocolate. There are a couple of microbreweries around. We have a dairy a few miles from here that produces milk and retails or wholesales it in their own glass bottles.

    I'm looking at taking a couple of acres and turning it into a vineyard. I don't expect to get rich or do anything other than maybe cover my property taxes, and I'm still trying to decide between table grapes and wine grapes. If I go with wine grapes, we have several small wineries within a twenty or thirty mile radius to which I might sell.

    So your hope for a renaissance of productivity and people living for something other than pure consumption -- at least among a segment of the populace -- may be better than we think at first.