Sunday, December 04, 2011

Money Chasing Too Few Instruments, and the Senile Continent

Spengler’s take is direct and plausible. While Europeans enjoy blaming the US financial crisis for their woes, one wonders why they were invested in it to begin with? It’s simple:
The aging pensioners of Europe and Asia must find young people to pay interest into their pensions, and they do not have enough young people at home. Germans aged 15 to 24, on the threshold of family formation, comprise only 12% of the country's population today and will fall to only 8% by 2030. But one-fifth of Germans now are on the threshold of retirement and half will be there by mid-century.
There’s an echo of what the “occupists” don’t get as well. If they’re young and mad, and don’t want to tell themselves just who it is who have the wealth they want to take, why don’t they just come out and say “eat the old” instead of “eat the rich”? Well, aside from it not being as politically useful, they only understand the red leftist recreational fisting chants that have been trained into them.
The monster is not the financial system, crooked and stupid as it may have been. The monster is the burgeoning horde of pensioners in Germany and other industrial countries. It is easy to change the financial system. The central banks can assemble on any Tuesday morning and announce tougher lending standards. But it is impossible to fix the financial problems that arise from Europe's senescence. Thanks to the one-child policy, moreover, China has a relatively young population that is aging faster than any other, and China's appetite for savings vastly exceeds what its own financial market can offer.

There is nothing complicated about finance. It is based on old people lending to young people. Young people invest in homes and businesses; aging people save to acquire assets on which to retire. The new generation supports the old one, and retirement systems simply apportion rights to income between the generations. Never before in human history, though, has a new generation simply failed to appear.
Tax rthe old? Sure – you try saying that, #OWS spuds!
The world kept shipping capital to the United States over the past 10 years, however, because it had nowhere else to go. The financial markets, in turn, found ways to persuade Americans to borrow more and more money. If there weren't enough young Americans to borrow money on a sound basis, the banks arranged for a smaller number of Americans to borrow more money on an unsound basis. That is why subprime, interest-only, no-money-down and other mortgages waxed great in bank portfolios.

America's financial market could not produce enough pork chops, so the Europeans bought Spam and scrapple. America's rating agencies assured them that derivatives created from subprime mortgages, second-lien mortgages and other dubious parts of the pig were the equivalent of pork chops, and foreign investors wolfed them down.