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The Great Boomer Bust

By David King Published: February 12, 2014

Harry Dent, a Harvard Business School graduate who has also been referred to as a futurist, created the Spending Wave theory of economics in a 1993 book titled The Great Boom Ahead. Dent associated economic growth with demographics. He postulated that the massive baby boom population would spur economic growth as it reached it's peak spending age years (mid-40's to 54). The baby boom generation refers to those children born in the post-WWII years of 1946 to 1964. If you look at the birth rate chart at the previous link, you will see that the birth rate has dropped dramatically since the baby boom period ended, and is now lower than at any time in the 20th century.

When the boomers became adults (I'm using 18 as the age of adulthood), that means the boomer effect on consumer spending began in about 1964 and hit full stride in 1982. This boomer spending wave would be expected to continue until the boomers were past their peak spending years, all other economic factors being equal.

Historical GDP numbers bears out this boomer spending wave. GDP has increased rapidly, and the chart itself LOOKS like a big wave. Click on the previous link and give it a quick look.

The bad news is, once the boomer spending wave crashes and his the shore, we should expect a drop in consumer spending as the demographics change.

The New York Post recently put it this way in an article called Aging America Heading For Disaster:

Ultimately the size of the US economy is simply the total of what we’re all spending. Overall household spending hits a high when we’re about 46. So the peak of the Baby Boom (1961) plus 46 suggests that a high point in the US economy should be about 2007, with a long, slow decline to follow for years to come.

I will quibble a bit with Post's numbers, which I found somewhat arbitrary and conveniently predicted the 2007 recession, but the larger point about boomer demographics remains. Somewhere between 2007 and about 2017, the huge boomer population will be past it's peak spending years, and beginning in 2008 (1946 plus 62, the age at which the boomers can begin collecting Social Security), the boomers enter their entitlement period (SS and Medicare).

The end of boomer peak spending was the subject of another book, called The Great Bust Ahead, written in 2002 by Dan Arnold. Mr. Arnold predicted the boomer spending wave would last until 2011-2012, followed by a depression far worse than the Great Depression of the 1930's. Arnold said the end of the spending wave could begin even earlier (like maybe 2008 ?).

Looked at in this boomer demographic light, how surprising is it that the housing market cratered in 2008, and the subsequent financial crisis occurred ? How surprising is it that consumer demand began to wane and we entered a serious recession ? I'd say it's not surprising in the least. It was predictable based on demographics alone. How unfortunate that our highly-educated elite geniuses running Washington D.C. didn't see it coming, or didn't bother to address it they did.

The Congressional Budget Office (CBO) also predicted the Great Bust in it's report last week. Here's what the CBO predicted:

“Beyond 2017, CBO expects that economic growth will diminish to a pace that is well below the average seen over the past several decades [due in large part to] slower growth in the labor force because of the aging of the population.”

So...as we enter the post-boomer Great Bust period, how do we find ourselves positioned to handle it ?

The U.S. government has already been running up record debt, which is now over $17.3 trillion, larger than our entire economy. $6.6 trillion has been added to the debt in President Obama's five years in office alone. The Federal Reserve has been propping up the economy with trillions of dollars of Quantitative Easing (artificially increasing the monetary base). We have a mountain of unfunded entitlement promises (mostly SS and Medicare) that the government has to fulfill, and frankly, they have no idea how to address it. Shrinking economic growth (Great Bust) and massive entitlement increases (retired boomers) at the same time don't add up. We are heading for disaster. The federal government has not only abdicated responsibility on this issue, it is making things demonstrably worse, which I have referred to several times on this blog as Total Economic Fantasyland.

Maybe the Great Recession and the last five years are not a fiscal aberration in the economic cycle. Maybe it is simply an adjustment to the new normal, with things about to become far worse in the years ahead.

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