Hunker down folks we are heading into a depression!

I will not profess to be an expert on economics, far from it, but what I think I do have is a sense of reality. My sense of reality is that the United States, if not the entire world, is heading into a depression similar to 1929. I base my prediction, not on fancy statistics on money supply, money multipliers, Keynes versus the Monetarists, rather I base my prediction of the future based on simple demographics. And there is only a single statistic one need to understand to see where we are headed. For our economy to remain vibrant, we need consumption of goods and services. Each dollar that is spent on consumption has a multiplier effect in the economy. So, when I purchase a particular good or service, that purchase adds money to the economy which in turn creates additional spending producing that good or service, and so on and so forth. So the impact of that single purchase has a ripple effect. Now… as one moves through life we go through purchasing stages. We start by purchasing our first home… which creates a stimulus. Think of the home as a “nest”… this nest is where our consumption begins. First we furnish the nest, then we fill the nest with children, and then we move up to a bigger nest, and again repeat the furnishing pattern. All along the way… we are consuming goods and services. Typically one is a net consumer of goods and services, ie we spend more than we produce, from the age of 20-50. This 30 year period I call the consuming years. From 50 until we die we slowly become negative consumers. From 50 and beyond we downsize our nests, the kids move out, and we generally consume far less goods and services. And in many ways we are negative consumers. WE save money, we invest in our retirement, and ultimately we live off our retirement savings plus Social Security. This brings me to my simple demographic statistic that tells me we are headed towards a depression. 1959 was the last year of the “baby boom”… the generation behind this “boom” is far fewer in number. Given this the number of “consumers” compared to “negative consumers” is reversed. We have entered a period where there is going to be far less consumption, and without consumption of goods and services, our economy will contract. Depending on how significant the drop in consumption, will impact the severity of the coming depression. Again looking at simple demographics, the “baby boomer” generation family size typically was 3-4 children, but the following generation saw family size more in the range of 2-3. This means consumption in the United States could drop by 25-50% simply based on population changes. Given this, a depression is unstoppable… and this depression will likely last for 5 years as the entire economy adjusts to lower consumption. In the meantime, home prices will collapse, the stock market will plummet, and unemployment will rise dramatically. My advice is to move to cash or commodities and away from stocks, homes, or similar assets. I hope I am wrong, but demographics are not favorable. And for god’s sake ignore your broker’s advice.

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