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By thankshousingbubble   Follow   Thu, 10 Feb 2011, 8:49pm   6,338 views   98 comments
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  1. ¥


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    59   12:44am Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike  

    The last time the economy was this bad (1982) we threw everything we had at it to get out:

    Unemployment (blue), Fed rate (red), Debt to GDP (Green, left scale)

    The story this chart tells is pretty easy to see. Volcker kills the economy by pushing fed rate to near 20% in 1981, debt to GDP declines in response, and big double-dip recession with unemployment moving from 7.5% to 10%. Thanks, Paul.

    But starting in 1981, debt to GDP was allowed to rise from ~1.0 to 1.5. Starting in 1982 interest rates fell from 15% to under 7.5%, and unemployment fell back to ~6%.

    Today, however, we find ourselves in a very different situation.

    Same graph, 1998-2010

    The blue unemployment line is pegged at ~10%. It'd be higher but "participation" is falling and we've had 99 weeks of unemployment to fake-employ people, good for another 4% better number.

    Fiscal policy (the red line) is clearly at the zero-bound, so the Fed is reduced to printing money, which will probably inflate everything EXCEPT people's salaries.

    So we're left with debt as our savior this decade. It's already well above 2.0 x GDP.

    Treasury is doing its part:

    http://research.stlouisfed.org/fred2/series/FYGFDPUN

    But everyone else seems to be tapped out:

    http://research.stlouisfed.org/fred2/series/TCMDO

  2. MarkInSF


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    60   1:28am Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike  

    iwog says

    Do you see any extended plateaus on this graph? I don’t. What I see is peak unemployment rate occurring right at the end of each recession, or more recently 18-24 months after the end of a recession. After the peak, the rate falls VERY QUICKLY back to more reasonable levels. (wage inflation)

    Wow. Still amazed you think this is just another post WWII recession.

    You said it yourself about wealth disparity. When was the last time wealth disparity was this bad again?

  3. toothfairy


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    61   4:54am Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike  

    I'm not going to downplay this rise in foreclosures but I will say it's only part of the story.

    The other part being that the bay area is diverse. In my local market that I watch very closely Case Shiller index will
    be going up this spring. No question about it.
    Rents also going up too.

  4. American in Japan


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    62   6:40am Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike  

    @Troy

    Thanks for the graphs... Now to look at them again...

  5. iwog


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    63   8:10am Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike   Protected  

    MarkInSF says

    Wow. Still amazed you think this is just another post WWII recession.

    You said it yourself about wealth disparity. When was the last time wealth disparity was this bad again?

    1929, however that's not the whole picture.

    The Great Depression was simply the last and largest of a long line of depressions going back to the early 1800s. Like previous depressions, it was caused by wealth disparity, however several things conspired to make it longer and more severe. Top on the list was a rigid currency system based on gold that did not allow the fed or the government to flood the nation with liquidity.

    The main point here is that severe wealth disparity was very typical of the United States prior to 1929 and especially during the industrial revolution. Teddy Roosevelt went to war against the inequity long before his cousin FDR finished the job. People complain about 2 income families, but how about 3 and 4 income families when your children are forced to work alongside you? Yet depressions came and went every 20 years or so, and each was followed by a new boom of prosperity.

    Anyway I agree this is not just another post WWII recession. It's a pre-WWII style depression that will be followed by a pre-WWII boom recovery. The difference is that Bernanke and company flooded the world with unprecedented sums of cash, and saved all the banks that were supposed to fail.

    What happens next is jobs come back, the dollar gets stronger, and inflation becomes a problem.

  6. bubblesitter


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    64   8:21am Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike  

    If this downturn stretches up to 2025, would it be considered bad then Great Depression?

  7. nickburger


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    65   8:37am Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike  

    The misconception that low interest rates (i.e. 4%) is in any way part a bottom/buying opportunity is the kind of true idiot thinking that got everyone into this mess. Nothing would kill real estate prices quicker than a rate increase to 6% (a number we were told was a "historic low" only a few years ago). As Patrick has pointed out in other postings, for those who have actual savings toward a home purchase it would be far better to buy when rates were high and prices low. Right now we still have the opposite. Come on Chinese! Bring on the 7-8% rates and let's get on with it.

  8. iwog


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    66   8:40am Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike   Protected  

    nickburger says

    The misconception that low interest rates (i.e. 4%) is in any way part a bottom/buying opportunity is the kind of true idiot thinking that got everyone into this mess. Nothing would kill real estate prices quicker than a rate increase to 6% (a number we were told was a “historic low” only a few years ago). As Patrick has pointed out in other postings, for those who have actual savings toward a home purchase it would be far better to buy when rates were high and prices low. Right now we still have the opposite. Come on Chinese! Bring on the 7-8% rates and let’s get on with it.

    I wish people would stop making this argument. It doesn't work that way. Interest rates and real estate prices generally rise together. High interest rates did not "kill" real estate in the late 1970's, in fact they were concurrent with one of the biggest real estate booms in history.

  9. RayAmerica


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    67   9:46am Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike  

    iwog says

    High interest rates did not “kill” real estate in the late 1970’s, in fact they were concurrent with one of the biggest real estate booms in history.

    What was the inflation rate "in the late 1970's?"

  10. RayAmerica


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    68   9:48am Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike  

    iwog says

    What happens next is jobs come back, the dollar gets stronger, and inflation becomes a problem.

    "inflation becomes a problem" .... this coming from the very same Duck that quacked repeatedly how we NEED inflation. He strongly advocated letting the printing presses run wild in order to pay down our debts.

    Have you had a change of heart IWOG?

  11. iwog


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    69   10:39am Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike   Protected  

    RayAmerica says

    “inflation becomes a problem” …. this coming from the very same Duck that quacked repeatedly how we NEED inflation. He strongly advocated letting the printing presses run wild in order to pay down our debts.

    Have you had a change of heart IWOG?

    The problem of inflation is the best possible scenario. Everything you dream about is a nightmare by comparison.

  12. pkowen


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    70   11:13am Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike  

    iwog says

    thomas.wong1986 says

    We (the Bay Area) were already deep in a housing bubble by year 2000. Prices doubled from 1998 to 2000. [..]

    Unless the Bay Area real estate market has SIGNIFICANT declines combined with a full 1% decline in interest rates, we will NOT match the first quarter 2009 buying opportunity. I actually bought two Bay Area homes in early 2009. Did you?

    I really wish you'd stop trying to expand "Concord" into "the bay area". The bay area is 9 counties and a multitude of markets.

  13. iwog


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    71   11:29am Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike   Protected  

    pkowen says

    I really wish you’d stop trying to expand “Concord” into “the bay area”. The bay area is 9 counties and a multitude of markets.

    I didn't mention concord. I'm using Case-Shiller data for the greater bay area.

    On hindsight, I was probably pretty stupid. I could have gotten much better bang for the buck in Antioch and elsewhere.

  14. ¥


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    72   11:38am Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike  

    iwog says

    High interest rates did not “kill” real estate in the late 1970’s, in fact they were concurrent with one of the biggest real estate booms in history.

    And I wish you'd really stop trying to equate the 2010s to the 1970s.

    the Fed raising rates (red line) in the shadow of a booming job market (blue line).

    In the late 1970s over 15 million people entered the labor force.

    Participation in the 1970s rose ~10%, from 60% to 66%:

    http://research.stlouisfed.org/fred2/series/CIVPART

    Compare that to now.

    Wealth disparity was as low as it was going to get by the end of the 1970s.

    Now. we're back to the 1920s.

    The baby boom was aged 13 to 29 in 1975 and ready to join the ranks of productive adults.

    In 2015 they will be 53 to 69, and LEAVING the ranks of productive adults.

    This is good for employment, but bad since we've made around $60T of promises to the baby boom that are going to need to be paid. FICA and medicare are simply going to have to be raised to ~20% this decade if we intend on actually paying our bills.

    Basically every wage increase we do see from here on out is going to go straight into paying for the baby boom's retirement and health care expenses.

    We had the beginnings of moving our productive employment to Mexico by the 1970s, but NAFTA was still over a decade away. We were still BOMBING Vietnam in the 1970s, not having them make our stuff.

    And of course in China Mao's Red Guard was still engaged in bloody street battles with the Red Army. Now the Red Army is part of the System that is pumping $200B+/yr of debt into our economy in exchange for trinkets.

    http://www.census.gov/foreign-trade/balance/c5700.html#2010

    In the 1970s we were still close to peak domestic oil production, and in fact Alaska was going to enter peak in the 1980s, putting the West Coast of the US awash in cheap gas (Chinese exports to the US were under $5B in 1986 -- they couldn't afford our gas back then).

    But we are much more productive now than in the 1970s. This is good and this is bad. Good in that those with jobs can in fact stay above water.

    Bad in that those without productive employment now are going to be just screwed.

    Without the return of credit-debt of the bubble machine, this is going to be a "Musical Chairs" economy for the middle class.

    But the bubble machine is broken and nobody knows how to fix it.

    Government is no help either. Just look at Jerry Brown's hardball he's playing with the state budget. We've got two choices here, both shitty.

    Same thing with local government -- we need higher taxes or we're going to cut employment.

    EVERY trend we're facing now is deflationary to housing. INCLUDING price inflation.

    Without wage inflation there is going to be no price inflation. What recovery we've had in the job market has been FAR below the growth needed to take up the population born ~22 years ago.

  15. pkowen


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    73   12:51pm Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike  

    iwog says

    pkowen says

    I really wish you’d stop trying to expand “Concord” into “the bay area”. The bay area is 9 counties and a multitude of markets.

    I didn’t mention concord. I’m using Case-Shiller data for the greater bay area.
    On hindsight, I was probably pretty stupid. I could have gotten much better bang for the buck in Antioch and elsewhere.

    Ok, then.

  16. YesYNot


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    74   1:10pm Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike  

    iwog says

    I wish people would stop making this argument. It doesn’t work that way. Interest rates and real estate prices generally rise together. High interest rates did not “kill” real estate in the late 1970’s, in fact they were concurrent with one of the biggest real estate booms in history.

    Hard to see from a plot of median price of new houses over time.

    Easier to see when you plot the derivative of the median price of new houses. If anything, increasing the fed funds rate leads to a drop in appreciation or even a drop in price. I used median data from the census without any inflation correction or correction for new house size.

  17. terriDeaner


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    75   2:14pm Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike  

    Very nice chart YesYNot. Could you plot the curves for the fed funds and the rate of change for the median home price as a moving average to smooth out the noise a bit?

  18. YesYNot


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    76   2:32pm Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike  

    Sorry, I should have stated this earlier. In the first plots, the FFR data were monthly, and smooth enough, so no averaging was done. The median price data had a lot of monthly fluctuation, so the derivative was meaningless. In the first plot, I did a 13 point moving average of the monthly data, essentially averaging over the year. It looked smooth enough, so I left it alone.

    In the next plot (this post), I did a 11 point moving average on the fed funds rate & the already averaged median price data. This one is a lot smoother, and the lines have not otherwise changed much. As expected, the averaging made the peaks a little less extreme. For instance, the peak interest rate went from 19% to 17% or so in 1981. Applying the averaging twice like this allows data 12 places away 1 yr in either direction to influence the value at any one point.

    The derivative is center weighted: (price_n+1 - price_n-1)/(2/12) := $ / year. This was normalized to percent change by dividing multiplying by 1/(price_n)*100.

  19. terriDeaner


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    77   2:46pm Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike  

    Thanks, the trend looks a lot cleaner, particularly for the fed fund peaks around 1970, 1980, 1988, and 2006. The only strong exception seems to be ~1972-1976 where the fed funds and the price rate-of-change look to correspond. This also corresponds with the beginning of your trend line for Freddie Mac 30-yr in your earlier chart. Any relationship between the two?

    Also, the rate-of-change response to the fed fund rate in the 1990s seems a bit weak relative to other peaks...

  20. ¥


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    78   2:47pm Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike  

    SF ace says

    An accompany rise in the fed fund rates after the crash (and ultimetly rise in interest rates) lead to apppreciation subsequently.

  21. iwog


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    79   2:52pm Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike   Protected  

    Troy says

    And I wish you’d really stop trying to equate the 2010s to the 1970s.

    I did no such thing. I'm making a simple observation that increases in interest rates have historically been correlated with rising real estate prices.

    If it's your theory that rising employment numbers were driving the housing market AND making up for increased interest rates, that's an interesting premise, however I don't see how that's different from my assertion that future price increases will be at the expense of living standards and funded by a greatly enriched aristocracy.

  22. iwog


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    80   2:56pm Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike   Protected  

    Lets remember that the fed funds rate is not directly connected to the mortgage interest rate. A lot of the apparent correlation disappears when you're looking at the cost of money. The fed funds rate is more a measure of economic growth.

    A good example of this is around 1975. The fed funds rate crashed, but the cost of a mortgage barely moved, and real estate continued to appreciate throughout.

    graph

  23. ch_tah


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    81   2:59pm Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike  

    Another interesting note about the graphs is that a double dip is extremely unlikely. There was negative appreciation 3 times - around 1970, 1990 and and late 2000's - dips ~every 20 years. Maybe this time will be different though.

  24. terriDeaner


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    82   3:23pm Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike  

    iwog says

    Lets remember that the fed funds rate is not directly connected to the mortgage interest rate. A lot of the apparent correlation disappears when you’re looking at the cost of money. The fed funds rate is more a measure of economic growth.
    A good example of this is around 1975. The fed funds rate crashed, but the cost of a mortgage barely moved, and real estate continued to appreciate throughout.

    Hmmm. Actually, with the exception of 1975, I'd say this correlation between the fed funds and the 30 yr fixed mortgage is pretty good until the early-mid 1990s. Due perhaps in part to the rise in use of ARMs from the 80's on?

  25. ¥


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    83   3:35pm Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike  

    iwog says

    I’m making a simple observation that increases in interest rates have historically been correlated with rising real estate prices.

    and the last time we saw that was the late 1970s!

    gah. Look at your own f---ing chart above. That orange line has been falling for 30 years.

    There's also an immense difference as to where rates are moving FROM.

    The 1993-94 rate raise was back to neutral from the stimulative effort of the early 90s recession.

    The 1998-2000 rate raise to slightly above neutral was basically economic malpractice given the immediate need to drop rates to near-ZIRP right after.

    The only positive correlation you've got is the 1970s. See my argument above for why that's special pleading.

  26. YesYNot


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    84   4:03pm Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike  

    When I look at the smoothed graph, I see many instances of a fed funds overnight rate increase preceding or coinciding with a drop in appreciation or a depreciation of RE prices. This happens in 1968, 1975, 1980, 1987, 2006.

    I put the Freddie Mac 30 yr rate on the first graph, but dropped it because (a) it doesn't go back as far (b) it doesn't seem to correlate as well partly because the swings in the 30 yr rate are less dramatic.

    My guess is that the overnight rate corresponds well through some indirect correlations with demand such as how the economy is doing as a whole like iwog said. The 30 yr rate just impacts price directly though the monthly nut.

    The main point, though, is that high interest rates (overnight or 30 yr) do not have a strong positive correlation with house appreciation. For periods of high inflation, you would expect both to rise. This was true to some degree in the 1970s (iwogs favorite example), but the increase in the interest rate from 1977 to 1981 was followed with a cooling of the housing market (1978 to 1982). This seems to me to be great evidence that increased borrowing costs slow down demand.

  27. terriDeaner


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    85   4:19pm Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike  

    YesYNot says

    When I look at the smoothed graph, I see many instances of a fed funds overnight rate increase preceding or coinciding with a drop in appreciation or a depreciation of RE prices. This happens in 1968, 1975, 1980, 1987, 2006.

    Looks like I missed this for 1975 - now I see what you mean.

    I put the Freddie Mac 30 yr rate on the first graph, but dropped it because (a) it doesn’t go back as far (b) it doesn’t seem to correlate as well partly because the swings in the 30 yr rate are less dramatic.

    Makes sense. I was just unsure whether you aimed to highlight the effect from the introduction of the Freddie Mac 30 yr fixed as a new product for the mortgage market, or were simply trying to chart the historical 30-yr fixed interest rate as a response to the fed funds rate. I agree that the 30 yr fixed rate is a muted variable.

    My guess is that the overnight rate corresponds well through some indirect correlations with demand such as how the economy is doing as a whole like iwog said. The 30 yr rate just impacts price directly though the monthly nut.

    The main point, though, is that high interest rates (overnight or 30 yr) do not correlate well with house appreciation. For periods of high inflation, you would expect both to rise. This was true to some degree in the 1970s (iwogs favorite example), but the increase in the interest rate from 1977 to 1981 was followed with a cooling of the housing market (1978 to 1982). This seems to me to be great evidence that increased borrowing costs slow down demand.

    Looks pretty convincing for the long term.

  28. iwog


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    86   4:26pm Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike   Protected  

    Troy says

    The only positive correlation you’ve got is the 1970s. See my argument above for why that’s special pleading.

    You have no historical evidence whatsoever that higher interest rates depress the price of housing!

    Higher interest rates = higher inflation = higher demand for inflation shelters. Real estate has been an inflation shelter for 5000 years. You think a billionaire desperately seeking capital preservation is going to give a crap if mortgage rates are going higher? You think a blue collar worker on the verge of being priced out of his dream home is going to sit on the sidelines and wait out an era of higher interest rates that might last a decade?

    Hell no! The same irrationality that caused the housing bubble, the same irrationality that caused people ON THIS BOARD to short the stock market in March of 2009 (and there were dozens of threads about it) will compel people to buy real estate when interest rates are rising.

    The only thread of hope you have left is the argument that has been ridiculed mercilessly by the very people who think the market is going to continue down. "Everything is different this time" Everything is NOT different this time. Jobs are coming back, the economy is growing, corporations are reporting profits, and Bernanke is hell bent on making sure banks lend money again. And why shouldn't they? They run a zero risk operation ensured by the full faith and credit of the United States government.

  29. iwog


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    87   4:31pm Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike   Protected  

    YesYNot says

    When I look at the smoothed graph, I see many instances of a fed funds overnight rate increase preceding or coinciding with a drop in appreciation or a depreciation of RE prices. This happens in 1968, 1975, 1980, 1987, 2006.

    It's a very short term effect that is probably caused by the economic conditions that move the fed funds rate instead of interest rates themselves.

    A real smoothed out chart would eliminate all the intra-year noise and show steadily increasing mortgage rates combined with steadily increasing home prices.

    Obviously a fed funds rate of 0% hasn't sent people running to buy real estate. If inflation does show up in force next year, Bernanke is going to be forced to start moving the fed funds rate upward. Expect real estate to follow.

  30. terriDeaner


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    88   4:34pm Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike  

    iwog says

    A real smoothed out chart would eliminate all the intra-year noise and show steadily increasing mortgage rates combined with steadily increasing home prices.

    Do you have one you could post?

  31. ¥


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    89   4:35pm Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike  

    YesYNot says

    This seems to me to be great evidence that increased borrowing costs slow down demand.

    It's utterly bizarre why this is even being debated.

    The core miscommunication here is an expectation of late 1970s, late 80s, or late 90s style job market heat-up.

    While there is an obvious pattern there, one needs to understand WHY these booms came as they did.

    I think the 1970s was a bona-fide productivity boom, driven by the baby boom, women, and available opportunities.

    The 1980s continued this but started the divergence of total debt vs. GDP.

    Total Credit Money Owed (blue) vs nominal GDP (red)

    Plus lower nominal oil prices 1985-1995 didn't hurt.

    The 1990s featured the front-side benefits of our burgeoning trade imbalance, largely with China:

    http://research.stlouisfed.org/fred2/series/BOPGTB

    So yeah, if we get a job boom like previous decades:

    Job growth in 5 year periods:
    1970-1975: +8.6%
    1975-1980: +17.5%
    1980-1985: +6.1%
    1985-1990: +13.3%
    1990-1995: +6.6%
    1995-2000: +12.4%
    2000-2005: +1.3%
    2005-2010: -2.4%

    we'll see home inflation like those hot periods (1975, 1985, 1995).

    Right now we're at the same number of jobs we had back in 1999, so any growth now is just bailing out the boat.

    However, debt -- per the graph above -- has shot off the chart.

    And now we've got 80 million baby boomers ready to enjoy their trillions of government cheese they've been promised.

    This is not going to end well.

  32. ¥


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    90   4:36pm Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike  

    iwog says

    If inflation does show up in force next year, Bernanke is going to be forced to start moving the fed funds rate upward. Expect real estate to follow.

  33. iwog


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    91   5:16pm Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike   Protected  

    Troy says

    It’s utterly bizarre why this is even being debated.

    You are obsessed with debt my friend, and I don't think you realize that the end game of too much debt is not a collapse of the debt market and deflation, it's exactly the opposite. You're confusing what happens when your money supply is rigid and based on gold.

    Right now you have the biggest borrower holding the keys to the printing press, and the biggest borrower also gets kicked out of office if the voters don't get their support checks.

    It will be death by fire, not death by water. We are Rome, not Japan.

  34. ¥


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    92   5:31pm Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike  

    iwog says

    t will be death by fire, not death by water. We are Rome, not Japan.

    I don't necessarily disagree, but I think it will be death by both.

    It is a very difficult exercise to fully tease out what's going to happen this decade.

    I don't think anyone really knows.

    The only thing that matters to home-owners is nominal prices. Making the argument that nominal prices are not going to be pulled up in a massive inflationary event, should one come, is difficult I admit.

    But I think we've got to keep our eye on rents and interest rates. I think both of these are going to be seeing headwinds vis-a-vis price appreciation this decade.

    We're just trying to keep this ship afloat.

  35. YesYNot


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    93   5:37pm Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike  

    Troy says

    YesYNot says

    This seems to me to be great evidence that increased borrowing costs slow down demand.

    It’s utterly bizarre why this is even being debated.

    Troy, I agree with most of what you are writing. I made the graphs because (1) there has been a lot of debate, mostly driven by iwog on this and (2) high inflation means that the dollar decreases in value. Thus prices of everything, including oil, gold, food, and houses will often go up when measured in dollars.

    Here is the latest plot with the CPI included.

    The baby boom bulge was from 1945 to 1960 roughly.

    So, the inflation & house price increases in the 1970s was probably caused in part to the baby boomers (BBers) being 18 to 28 (average age in 1970 & 1980). This led to an increased demand for houses as well as a general increase in # of jobs and economic activity. The 1970s also saw an increase in # of women in the workforce, further increasing the # of workers. In the next 30 years (1980 to 2010), the BBers were putting money into the stock market, leading to some leveraging up. Also, there was a huge SS surplus, which led to free government stimulation through spending more than the income tax. Now (2010), the baby boomers are 50 to 65 yrs old. So, they are starting to take money out of the stock market, some may die or downsize, etc. So, there will be some deleveraging over the next 15 years as the BBers do the traditional things that people of that age do. Also, there will be a social security (SS) deficit, so the government will have to spend less per $ of income tax (non SS spending). This spending decrease is also going to slow down the economy.

    That is the big difference between the 1970s and now in my mind. The 1970s saw the BBers enter the workforce. Now, the BBers are exiting.

  36. ¥


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    94   6:29pm Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike  

    Here's a chart I like to make about population pyramids . . . you can easily compare certain years since the additive blend of their year cohorts turns gray thanks to the bar being complementary colors.

    With this chart solid color is new additions to each 5 year group, 2020 vs 2003.

    Eg. in 2020 we will have about 3 million more people age 80+ in 2020 compared to 2003.

    You can really see the baby boom hit the 55-75 bins, too. Roughly 18M more people up there by 2020.

    This is the demographic trend we're looking at. Inflation is not going to solve it.

    Curiously, people in their 40s will fall by 4M people in 2020. I don't know what this means.

  37. ¥


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    95   6:51pm Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike  

    fwiw, here's the Japanese comparison, 2003 vs 2020:

    It's kinda unclear but other than the seniors, only the 40-49 cohort is larger in 2020 than 2003.

    The age 25-35 cohort is going to be missing ~8 million people!

    I don't know if the Japanese pyramid is a lot worse or a lot better than ours.

    The number of old people 80+ doubling from 5.5M to 11M is something, but I don't see why their unemployment problem won't go away later this decade.

    Except for people in industries that cater to young adults I guess. That cohort is just disappearing.

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    96   10:31pm Mon 14 Feb 2011   Share   Quote   Permalink   Like   Dislike  

    Iwog, You might be right, Only IT WILL NOT BE HERE in the USA (China, India yep BOOM times there, so your inflation will be with Commodities BUT the USD. The costs of FOOD, OIL, GOLD, SILVER, of yes lets not forget TAXES and other Hard commodities will go up, BUT NOT housing, and not USD

    What exactly do you see the aging baby boomer doing, to create this boom? In fact due to the rising costs of everything else, it will leave less and less of the 4 working incomes to pay for costs of living. So even with all 4 of the family working, just to pay for food, and health care and oil.

    IWOG this is not going to followed by a boom... and if it is, it will be a BOOM of the DEBT exploding in our faces. Or it will be a boom in a foreign land.

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    97   4:46pm Thu 17 Feb 2011   Share   Quote   Permalink   Like   Dislike  

    Troy,

    The charts are interesting.

    When I look at it [and make the assumption that boomers will be retiring at "normal" ages], it appears that we will be removing far more people from the labor force than we are adding. (The yellow part of the 65-69 bar is much larger than the blue part of the 20-24 bar)....so, with time, our unemployment situation will get some help, I imagine. I think Japan is going to be hurting pretty bad over the next 3 decades or so -- especially if people just keep getting older instead of dying. :)

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    98   8:57pm Thu 17 Feb 2011   Share   Quote   Permalink   Like   Dislike  

    @Cvoc13

    >IWOG this is not going to followed by a boom… and if it is, it will be a BOOM of the DEBT exploding in our faces. Or it will be a boom in a foreign land.

    LMAO!

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