Famous German soccer coach Sepp Herberger once said, “After the match is before the match.” The same can be said for financial markets: After the crisis is before the crisis. The complication, of course, is that while soccer players usually know exactly when the next match will kick off, the timing of the next crisis is always uncertain for financial players. All we know is that, eventually, there will be another one. ... What’s perhaps less obvious is that the global savings glut also helps to explain the occurrence of financial bubbles and subsequent crises of the past few decades. ... the global savings glut plays an important role in explaining this evidence. How? Excess savings not only pushed down r* and actual interest rates but also drove up asset prices and caused serial asset bubbles in equities, emerging markets, housing, credit, eurozone peripheral bonds and commodities. Whenever a bubble burst, it sparked financial distress and crisis. ... there is a feedback loop between financial crises and the savings glut. This is because a financial crisis and the related destruction of wealth leads to even higher desired saving (or deleveraging), and because the depressing impact on growth reduces investment and thus the demand for savings. ... now that exhaustion has set in almost everywhere for many unconventional policy tools, such as quantitative easing, there is a significant risk that central banks may not be able to deal effectively with the next crisis. ... It’s likely the only viable way out would be a joint effort by the major countries to raise public spending on infrastructure, education, and more in order to absorb excess savings and raise r*.
The developed world’s workforce will start to decline next year, threatening future global growth ... Ever since the global financial crisis, economists have groped for reasons to explain why growth in the U.S. and abroad has repeatedly disappointed, citing everything from fiscal austerity to the euro meltdown. They are now coming to realize that one of the stiffest headwinds is also one of the hardest to overcome: demographics. ... For the first time since 1950, their combined working-age population will decline, according to United Nations projections, and by 2050 it will shrink 5%. The ranks of workers will also fall in key emerging markets, such as China and Russia. At the same time the share of these countries’ population over 65 will skyrocket. ... reflects two long-established trends: lengthening lifespans and declining fertility. Yet many of the economic consequences are only now apparent. Simply put, companies are running out of workers, customers or both. In either case, economic growth suffers. As a population ages, what people buy also changes, shifting more demand toward services such as health care and away from durable goods such as cars. ... Demographic forces are assumed to be slow-moving and predictable. By historical standards, though, these aren’t ... it took 80 years for the U.S. median age to rise seven years, to 30, by 1980, and just 34 more to climb another eight, to 38. ... There is no simple answer for how business and government should cope with these changes, since each country is aging at different rates, for different reasons and with different degrees of preparedness.
- Also: Wall Street Journal - 2050: Demographic Destiny
- Also: Quartz - By 2017, one in 17 Japanese will have dementia. Here’s how the country plans to cope < 5min
- Also: Bloomberg - Jefferies: Baby Boomers Will Spend Their Retirement Money on Golf and Travel < 5min
- Repeat: Wall Street Journal - Tastes Like Chicken: How to Satisfy the World’s Surging Appetite for Meat 5-15min
Americans are bad at saving. In an annual survey by the Fed, almost half said they couldn’t come up with $400 in an emergency. The savings rate of the bottom 90 percent of American households hovers just above 1 percent. ... There are many theories for why Americans don’t save, from poverty to debt to conspicuous consumption. But the most enticing comes from behavioral economics: It’s easier not to. Inertia is strong, and putting money away requires overcoming what economists call present bias. ... The good news, according to behavioral economists, is that we can just as easily be tricked into overcoming that psychology with “nudges” that reframe incentives. Just post calorie counts next to unhealthy food, and people won’t order cheeseburgers. Or, make 401(k) plans opt-out, and more people will save money for retirement. Suddenly, with one oh-so-simple tweak, making bad decisions becomes the harder option. ... At every step of the way, the study ran into a web of competing incentives and pesky human flaws that hurt its goal of getting poor people to save money. ... The problem goes beyond a sheer lack of funds. The psychology of poverty is hard to overcome with a dainty nudge. ... the study’s preliminary results were muddy. They suggested that the nudge method did get some people to save more: Deposits increased when people got some kind of reminder. But they didn’t show whether one type of nudge worked better than any other (possibly because of teller error), and they provided no evidence that the savings accounts helped people build up money over time.