Ageing and Drowning in Debt

A common theme of the challenge facing many nations economically is the aging population (see the graph below).  Quite simply there will be fewer people working per those retired.  This presents in a number of ways.  Firstly we’ve reported before about the US’s headline (and already terrible) $18.1 trillion in government debt really being around $100 trillion when you add the unfunded committed liabilities associated with supporting all these retirees on pensions and medicare.  The other symptom is of course you have fewer people working to pay off the debt.  In fact one of the world’s biggest banks, Goldman Sachs warned this week that the world is sinking under too much debt.  They said "The demographics in most major economies – including the US, in Europe and Japan - are a major issue – and present us with the question of how we are going to pay down the huge debt burden. With life expectancy increasing rapidly, we no longer have the young, working populations required to sustain a debt-driven economic model in the same way as we've managed to do in the past."

Japan in particular are a concern as it is not just aging population but a shrinking population on the back of their no immigration policy.  Japan, one of if not the most aggressive monetary stimulus players, already has a debt to GDP of 245%.  The OECD just warned that this could balloon to over 400% by 2040 (assuming it makes it that far).

Of course what governments are desperately trying to do is bring on inflation through more stimulus so they can try and inflate the debt away.  In fact with the reality presented above that is their only way they can.  That is a dangerous game when your stimulus has already created asset bubbles everywhere and is why gold wins either way.  Gold loves inflation but it also is the safe haven when the stimulus to end deflation causes a crash they no longer have the tools to stop.