The developed world is doing something unprecedented: It’s no longer reproducing. That’s great for the environment and very good for the work and housing prospects of the relative handful of kids that are being born (since fewer workers mean rising pay and fewer households mean cheaper real estate). But it’s bad for retirees who will have their benefits slashed when there are too few workers to support them.
Let’s begin with some charts from today’s Wall Street Journal. The first shows women waiting longer to have kids, with the average age for first birth rising from 21 in 1968 to 26 today:
The second shows the result, which is plunging birth rates among younger age groups:
This is due to a few (admittedly somewhat contradictory) things. First, college-educated women tend to make more money, which raises the opportunity cost of starting a family. Second, soaring student debt for those same college graduates makes work more necessary and the added expense of kids more terrifying. Third, the rise of the gig economy makes Millennial finances more precarious than for any other post-Depression generation, leading many to feel too overwhelmed to even consider starting a family. Fourth, kids are obnoxious (sorry, that’s just me venting about some hopefully very temporary family stuff).
Add it all up, and Americans (along with Japanese, Germans, and Italians) are having too few kids to replace their existing populations.
Immigration will no doubt take up some of the resulting slack, but not all of it because new arrivals soon adopt their host country’s breeding attitude. In the US, for instance, Hispanic birth rates are falling faster than for non-Hispanics.
Falling birth rates seem to be the new normal, with shrinking populations not far behind. In a wildly overcrowded world (watch the following video if you doubt the truth of this) …
… fewer humans solve a lot of problems. But why write about this trend in a gloom-and-doom finance blog? Because of the impact of falling working-age populations on the global financial system. The only way for Millennials to pay for Boomers’ Social Security and Medicare would be for the latter to confiscate 90% of the former’s paychecks. That won’t happen, so something else has to, most likely massive benefit cuts via hidden inflation.
In other words, we aggressively depreciate the dollar (and euro and yen) while raising retirement benefits by some fraction of that rate, thus stiffing retirees in a way that many won’t notice, at least for a while.
The side effect of this purposeful inflation will be a massive shift of capital out of financial assets like government bonds that depend for their value on the stability of the underlying currency, and into real assets like oil wells, farmland and precious metals which governments can’t create with a mouse click. So buy gold, sit back and enjoy the show.