Friday, May 21, 2010

Hat Trick

Wow, my third post this week. Clearly, this has something to do with the negative performance of global stock markets over the past few weeks. It's never fun to see markets go down, but that is how things work.

Apparently, the current correction has some relationship to the Greek government debt problems, or as we called it yesterday. "The Global Bailout" (Now, I will reiterate that the market performance of the past few weeks, down 10% or more, is perfectly normal and has many interconnected causes. It may very well be a good time to buy. Or not. No one knows)

Interestingly to me and readers of this blog is that I was in the middle of discussing the US government budget deficit, when the Greeks stole the headlines and panic began to spread, the theory being that Greece is just the tip of the iceberg. If the Greeks default on their debt, are Spain, Portugal and others next? Well, I've got some good news and bad news on that particular theory. The good news is that the iceberg is farther away than many think. The bad news is that the iceberg is also bigger than many think. Here's why:

The iceberg that I am talking about is the fact that in the Western Developed World (WDW) we are on a collision course with promises made to the baby boom generation concerning retirement. The primary reason these promises are such a problem is that life expectancy for baby boomers has increased by almost 10 years during their lives. That's a lot more social security checks than were originally planned for. This is a problem not only for Greece, but for governments at all levels in the WDW. Just look at California. The problem gets much bigger ten - twenty years from now as all of the baby boomers transition to retirement.

Which brings us to the good news; the real problems don't hit until ten years from now. A lot happens in ten years. Maybe Greece is the cannary in the coal mine and we will wake up and start acting like adults. There are solutions to the problem that could be enacted over the next decade. They may not eliminate the iceberg, but they may melt it a bit. I will look at some of those solutions next week.