Has anyone considered the idea that other countries have similar entitlement obligation issues to what we have in the US. In fact, there are also demographic problems in other countries (Italy/China) for example, that are far worse than what we have here.
I am almost entirely in foreign stocks and TIPS. I always like to break it down to the basics (foregoing economic jargon).
People need stuff. Young people produce more stuff than they consume (US. savings rate notwithstanding). Old people produce less stuff than they consume, but have savings to finance their consumption. As there are more old people and fewer young people, we have two issues: 1. the government has promised more to old people than the young will be able to produce. 2. There won’t be enough young people to produce all that young and old people plan to consume.
This can’t persist, so:
Wages for the young will increase. Returns on the assets of the old will decrease. This will persist until things balance again.
Old U.S. folks will be comfortable to the extent they have assets to support their consumption. Others who haven’t saved are screwed because the government can’t pay what it’s committed. The Chinese will be a bit better off due to their higher savings rates (personal and governmental), but worse off from demographics (net negative in my view).
I haven’t put this whole puzzle together yet, but those are some of my thoughts on how this plays out (unless the Chinese euthanize, which is a real possibility at some point in my mind).
One conclusion I have reached, though: There is a better demographic story in the U.S. than in many other countries. This will have a more positive impact than many assume.
