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.