Debt, demographics, and dishonesty

Abstract

The costs of supporting an aging society, in an era that will experience increased longevity, escalating health care costs, and low birth rates, will become untenable. The adjustments that must ultimately be made will inflict significant economic pain across all sections of society. Many people who regard themselves as being middle class will live out their lives in near-poverty. There are major implications for investment strategies. Long-term returns for most asset classes will be far lower than recent bull markets have led people to expect. Consumers, companies, and local and national governments all acquire debt. The impact of this debt depends on many factors. These include: its real (inflation-adjusted) cost, the degree of leverage and the debt-servicing capability, the uses that are made of the debt, and the identity of the creditors. The aging of western societies is not happening in isolation from demographic trends that are occurring elsewhere in the world. They are reforming totalitarian or corrupt political, legal, and class systems that kept the majority of their populations in poverty. The net result is a dramatic increase in global production capacity.