Stanley Druckenmiller, founder of Duquesne Capital, has given an excellent interview on Bloomberg Television’s “Market Makers” on the global economy, the demographic bubble and politics. The above video is an extract showcasing Druckenmiller’s views on the coming demographic challenge in the US, whereby the ageing of the population and transfer payments to the elderly (paid for by a declining tax base) threaten to permanently constrain the US economy and create an inter-generational war.
For added context, Doug Short provided the below charts over the weekend illustrating the ageing conundrum facing the US.
According to Short:
The year 2013 is an inflection point in the chart above, with the elderly cohort dramatically increasing in numbers. The ratio of the two, the blue line in the chart, peaked in 2007 and began its long rollover in 2008, coincident with the beginning of the last recession. We have many years to go before this ratio approximately levels out around 2030.
Even more disturbing is the elderly dependency ratio, the label given by demographers to the ratio of the 65 and older population to the productive workforce, which for developed economies is usually identified as ages 20-64. The next chart illustrates the elderly dependency ratio with Census Bureau forecasts to 2050. Note that in this chart I’ve followed the general practice in demographic research of multiplying the percent by 100 (e.g., the mid-year 2013 elderly dependency ratio is 23.3% x 100 = 23.3).
As the chart painfully illustrates, the elderly dependency ratio is in the early stages of a relentless rise that doesn’t begin to level out until around 2036, over two decades from now.
According to the United Nations, Australia’s demographic profile is very similar to the US.
The below chart compares the dependency ratio – i.e. the ratio of the non-working population, both children (< 20 years old) and the elderly (> 65 years old), to the working aged population – in Australia versus the US. As you can see, the dependency ratios fell steadily in the decades to 2010. However, in the decades ahead, both countries’ dependency ratios are projected by the United Nations to rise steadily as the baby boomers retire and their populations age:
It’s a similar story when the number of working-aged people (i.e. those aged between 20 and 65) is compared against the elderly (i.e. aged over 65). The ratio of working aged population to the elderly is projected by the United Nations to nearly halve by 2035 (see next chart).
Similar demographic constraints are coming to our shores as well.
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