Saturday, February 06, 2010

Demographics could affect sovereign debt, equity markets in the long run

Ian Bremmer and Nouriel Roubini have an important subscription piece on p A15 of the Wall Street Journal, “Sovereign Risk Meets Sovereign Reality: U.S. bonds won’t be rejected anytime soon, but higher borrowing costs will constrain policy.” He discusses the bailout of Dubai and the problems of Greece, Spain and Portugal, and the possibility of sovereign defaults is a real threat to equity markets. The link is here.

But he also says that the high debt in the U.S. and Japan will become a problem, without tax increases and entitlement reductions (means testing?) in the U.S. itself. Only the longstanding use of the dollar, almost as per Ayn Rand, seems to save us for the moment. Japan’s previous status as a trade creditor nation is weakened even more than the US by its aging population.

The undertone of the article is that “demographic winter” could become a serious strategic economic threat (indirectly showing up as higher interest rates), as much as climate change or financial debt structures themselves.


Brian Hasbrouck said...

Have you seen the current Foreign Affairs article on "The Population Bomb"?

Here are my notes on it:

“The New Population Bomb.”
o Basically, the world’s population and attention are moving away from America and Europe.
o This is important for global governance issues. But without leadership there is little to bank on in terms of a shifting of these international organizations realigning to the East.
o One of the more interesting concepts the author proposes that we ould send some of the elderly to 2nd and 3rd nations to ease the strain on public entitlements. It would have the additional benefit of creating infrastructure and facilities in these areas. At first you smirk, but then you realize it kind of makes some sense. The author points out that Americans (~750,000) already go overseas for medical procedures.

Bill Boushka said...

I've discussed the Foreign Affairs issue on my "international issues" blog here.

Brian Hasbrouck said...

very nice. I just don't see public policy being able to really change birth rates unless we get into structural issues such as childcare, etc. I don't particularly care so much since the US makes up for the major deficits that Europe suffers from through immigration, but still it was a pretty good piece.